Daperis CPAQuarterly Estimated Taxes: The Self-Employed Owner's Survival Guide
If you have a W-2 job, your employer handles this for you without you even thinking about it. Every paycheck, a chunk goes to the IRS before you ever see it. You get to April owing nothing, because the government already got paid, a little at a time, all year.
Nobody does that for you when you're self-employed. The IRS still wants to be paid as you earn it, not once a year in April. If you don't send it yourself, in installments, you'll owe a penalty on top of the tax, even if you pay the full balance by the deadline.
This is the most common surprise I see with new business owners and tradespeople going out on their own. Nobody told them, so nobody paid, and the first bill is bigger than they expected for exactly that reason.
Who This Applies To
If you expect to owe the IRS $1,000 or more for the year, after subtracting anything already withheld, you're supposed to make quarterly payments. That catches almost anyone running a profitable business on their own, and it kicks in the moment your side business becomes a real one, not just when it becomes your only income.
The Due Dates Aren't What They Sound Like
Despite the name, the payments aren't evenly spaced. The four 2026 due dates are April 15, June 15, September 15, and January 15 of the next year. The periods they cover are actually uneven, roughly three months, two months, three months, and four months. Miss one due date and that payment is late, even if you make it up at the next one. A strong fourth payment won't erase a weak first one.
Two Ways to Avoid a Penalty
You're in the clear if your payments, plus any withholding, hit one of two targets.
The first: pay at least 90% of what you'll actually owe this year. That means estimating your income accurately, which is hard if it's uneven or growing.
The second: pay at least 100% of what you owed last year, or 110% if your income last year was over $150,000 (over $75,000 if married filing separately). Most self-employed owners use this one, because last year's number is known, not a guess. If your income is growing, use this option, pay based on what you know actually happened, not what you're projecting.
If your income is dropping from last year, run both numbers before defaulting to whichever one you used before. The current-year option can sometimes mean paying less.
Check Your State's Rules Too
Everything above is federal. Most states with an income tax run their own separate system, and meeting the federal target doesn't mean you've met your state's. Many states follow a similar shape, pay a percentage of this year or a percentage of last year, but the exact numbers and deadlines differ by state. If you owe real money to your state, work that out separately instead of assuming the federal math covers it.
What's Actually in the Payment
For most self-employed owners, the quarterly payment covers two things: tax on your profit, and self-employment tax, the 15.3% that covers Social Security and Medicare that a paycheck would otherwise take out automatically. Owners who only think about income tax and forget the self-employment tax piece consistently underpay, because it's easy to overlook.
A Timing Trick Worth Knowing
Withholding gets treated differently than a payment you send in yourself. The IRS treats it as if it were spread evenly across the whole year, no matter when it actually happened. So if you or a spouse has a paycheck, or you run payroll for yourself through an S corp, bumping up withholding late in the year, even in December, can cover an earlier shortfall in a way a late payment can't. A December payment only counts for December. December withholding counts for the whole year. If you realize partway through the year you're behind, this is a real option.
If Your Income Is Uneven
If your business is seasonal, restaurants and hospitality often are, or income comes in lumps instead of steadily, paying the same amount every quarter can mean overpaying early in the year, before you've actually earned the money. There's a method that lets you base each payment on what you've actually earned so far, rather than assuming a flat quarter every time. It's more paperwork, but for a seasonal business it can genuinely help with cash flow.
The Bottom Line
If you're newly self-employed, start simple: use last year's tax bill, adjust upward if the 110% rule applies to you, and divide it into four payments before the year gets away from you. If your income swings a lot, revisit that number rather than setting it once and forgetting it. And check your state's own rules too. Plan for this before the due date, not after.
This comes up constantly for tradespeople going out on their own for the first time.
Disclaimer: This article is for educational and informational purposes only and is not intended as financial, investment, legal, or tax advice. The author assumes no liability whatsoever in connection with its use. This content is not an exhaustive explanation of any topic, practice or process. You should always seek the advice of a licensed professional before making any accounting, tax, financial, investment or legal decision.