Estimated taxes: When and how to make payments

Every tax season, business owners have to sort through various small business tax forms, from 1099 to W-2 forms. On top of that, many are already feeling pressure on cash flow. 

According to an Intuit QuickBooks Small Business Index report, small businesses increased their monthly credit card spending by 20% on average compared to previous years, putting extra pressure on cash flow. This strain makes the burden of estimated taxes feel even heavier.

If you expect to owe money at tax time, the IRS requires you to make these payments to avoid penalties. By staying on top of deadlines, using the right calculation method, and setting aside cash in advance, you can simplify compliance and avoid year-end surprises.

This guide walks through who must pay estimated taxes, how to calculate them, payment strategies, and tips to stay penalty-free in 2026.

Who has to pay quarterly estimated taxes?

When are estimated taxes due?

How do you calculate quarterly taxes?

How do you pay quarterly estimated taxes?

Estimated tax tips for business owners

Key IRS rules to know

Find peace of mind come tax time

Who has to pay quarterly estimated taxes?

Employees have taxes withheld from their paychecks, but individuals like independent contractors need to make quarterly payments.

However, you do not have to pay taxes every time you receive income. Instead, you can make tax payments in quarterly installments. These quarterly estimated taxes are for any income tax you owe, as well as self-employment tax. 

You generally need to make estimated payments if you .…

If you earn income that isn’t fully covered by withholding—like from freelance work, self-employment, or business earnings—you may need to pay taxes throughout the year instead of all at once. The IRS generally requires estimated tax payments when you:

• Expect to owe more than $1,000 in federal income tax (individuals).
• Expect to owe more than $500 in federal income tax (corporations).
• Earn income without sufficient tax withholding, such as from:
• Independent contracting
• Freelancing
• Sole proprietorships
• Partnerships
• S corporation shareholder income

How to avoid having to make estimated tax payments

If your tax withholdings equal 90% or more of what you will owe for the year, you likely won’t need to file quarterly taxes. Thus, you can use income tax withholding to avoid paying quarterly taxes if one or more of these applies: 

• You have a working spouse: If you have a spouse with a job, your spouse can increase their withholding to cover your estimated taxes (regardless of whether they make more or less than you). 
• You have a W-2 earning job: Business owners, especially those with side businesses, may have part-time or full-time jobs. You can increase withholding from your W-2 wages to cover the tax on your business income.
• You have an LLC that elects S-corp status: If you have an LLC, you can opt to form an S-corp. This enables you to take a salary and have withholding taken to cover the taxes on your salary as well as your share of business profits.

Learn the key IRS deadlines and dates to help with self-employment taxes

When are estimated taxes due?

You pay federal income taxes on a pay-as-you-go basis. The burden is on you to pay estimated taxes four times a year. 

The quarterly due dates for estimated taxes are: 

• Jan 15 for income you earn during the fourth quarter (Sept. 1 to Dec. 31)
• April 15 for income you earn during the first quarter (Jan. 1 to March 31)
• June 15 for income you earn during the second quarter (April 1 to May 31)
• Sep. 15 for income you earn during the third quarter (July 1 to Aug. 31)

Include these dates in your tax deadline calendar as a key part of any small business tax prep checklist.

Note that you may need to pay estimated taxes for your state as well. The due dates and requirements for many states may also differ from the IRS. 

How do you calculate quarterly taxes?

Underpaying your taxes triggers a penalty. Fortunately, the IRS provides two options for calculating and paying quarterly taxes:

Annualize your current year taxes

For this method, you’ll need to forecast your income and tax deductions for the year, and then calculate your tax obligation. You’ll want to ensure you’re paying at least 90% of the tax you expect to owe. 

This method can work well for those whose income varies throughout the year, like if your business is seasonal or you receive work during specific periods of the year and little to no work at other times. 

For example, let’s say that you have already paid your first and second installments of estimated taxes for the year. Then business picks up, and your income is 50% higher than the original estimate. You should adjust your third and fourth installments to take the added tax on this income into account.

Estimate taxes using prior-year tax

This method is simpler than forecasting your revenue and expenses for the current year. To use the estimate method, you look at what you paid last year and divide by four. That’s your quarterly installment payment for estimated taxes. 

For example, if your tax obligation last year was $5,000, your quarterly tax installment would be $1,250 ($5,000 / 4). 

Note that if your adjusted gross income last year was more than $150,000, the prior-year percentage increases to 110%. So if your income taxes were $5,000 last year, you’ll need to pay at least $5,500 ($5,000 x 110%) in the current year, or $1,375 per quarter ($5,500 / 4). 

If you expect your income in the current year to be the same or higher than last year, this is usually the easiest and safest strategy for figuring out your estimated tax. Just be ready to make up any shortfall in your taxes for the year when you file your return.

How do you pay quarterly estimated taxes?

The IRS can penalize individuals and corporations who don’t file and pay quarterly taxes by the due dates. However, they make paying these taxes relatively easy. You can use Form 1040-ES to estimate your taxes and then choose from several payment options:

IRS website: You can pay online using IRS Direct Pay, a free service that allows you to make secure tax payments from your bank account, either checking or savings.

By phone: You can pay by phone using IRS Direct Pay or by debit card, credit card, or digital wallet through a third-party provider for a small fee. 

By mail: You can mail a check or money order with Form 1040-ES to the address listed in the form instructions.

EFTPS: You can enroll in the Electronic Federal Tax Payment System (EFTPS) to pay directly from your bank account. This is a free service provided by the US Department of the Treasury.

What are the penalties or fees if you do not pay estimated taxes?

If you don't pay enough estimated tax throughout the year, you may be subject to penalties from the IRS.

The penalty for underpayment of estimated tax is calculated as a percentage of the unpaid amount. This percentage is based on the federal short-term interest rate plus three percentage points.

It's important to remember that this penalty is applied in addition to any interest accrued on unpaid taxes. So, the total cost of underpayment can be significant.

To find the most up-to-date penalty rate, you can refer to the IRS website or consult with a tax professional.

Estimated tax tips for business owners

One of the biggest struggles with quarterly taxes is not having cash on hand to pay them. Business owners use their income to pay creditors, make investments to grow the business, and more. But business owners and independent contractors must remember that anything they earn is taxable.

Here are some key tips for business owners and sole proprietors when it comes to estimated taxes: 

• Know that all your income is not fully spendable: Like employees who have taxes taken automatically from their paycheck, those paying estimated taxes must do their own “withholding.” For example, if you’re a freelancer who collects $2,000 for a project, know that a portion will need to go toward estimated taxes.
• Create an “estimated taxes” account: Separate funds for estimated taxes from your other business funds and hold the money in a different or cash reserve account. This will prevent you from using the money for other purposes.
• Work with a tax professional: Your accountant or other tax professional can monitor your income and expenses. They can provide you with tax advice about changes you need to make to your estimated tax payments based on current year tax changes.

An expert can also help you maximize your tax breaks and avoid missing other important tax deadlines.

Key IRS rules to know

A few IRS rules are especially important if you want to avoid penalties. These guidelines set the thresholds for who must pay estimated taxes and how much is required. Knowing them can help you plan ahead and stay in compliance without surprises at tax time.

What is the 110% rule for higher earners?

If you're married, filing jointly, and your adjusted gross income (AGI) was more than $150,000 last year ($75,000 for married filing separately), the IRS requires you to pay 110% of your prior year’s tax liability. This rule ensures that high-income taxpayers don’t underpay, even if their income is steady year over year. 

For example, if you owed $20,000 in taxes last year, you’d need to pay at least $22,000 in estimated taxes this year to avoid penalties. Planning for this upfront can help you set aside enough cash and avoid scrambling when deadlines arrive.

What’s the minimum thresholds for estimated taxes?

The IRS sets minimum thresholds to determine who needs to make quarterly payments. Individuals who expect to owe more than $1,000 must file Form 1040-ES and pay estimated taxes, while corporations have a lower threshold of just $500. 

These amounts may seem small, but they are the dividing line between needing to make quarterly payments or not. Keeping track of your projected tax liability throughout the year can help you determine whether you’ll cross these thresholds and need to plan for installments.

Can I use paycheck withholdings to cover taxes?

Not everyone has to deal with sending separate estimated tax payments. If you earn W-2 income, you can increase the withholdings on your paycheck by filing a new Form W-4 with your employer. 

By doing this, you’re essentially prepaying your taxes through payroll deductions instead of quarterly estimates. This approach can simplify tax planning, especially if you have both wage income and side business income, since the extra withholding can offset what you owe from self-employment.

Find peace of mind come tax time

Perhaps the best lesson to learn when filing small business taxes is that tax laws and rates can change yearly. Whether you’re an independent contractor or a small business owner, you’ll want to stay up-to-date on current tax laws and IRS regulations. 

Accounting software for self-employed individuals can help you manage your expenses, as well as estimate and file your taxes. With the Intuit AI accounting agent, you can get personalized guidance on estimated tax payments, reminders for upcoming deadlines, and step-by-step assistance for completing forms like 1040-ES. These AI tools help ensure you never miss a payment and reduce the risk of costly errors, giving you more confidence and control over your finances.