Quarterly estimated taxes for self-employed owners

Tax is expected as the income arrives

The IRS describes federal income tax as pay-as-you-go: tax is to be paid as income is earned or received during the year, not settled in one amount afterwards. For an employee that happens without any effort, because an employer withholds tax from each paycheck and sends it in.

An owner drawing income from a business usually has no one doing that. Profit from a sole proprietorship, a partnership share or an S corporation's pass-through income arrives with nothing taken out. Estimated tax is the mechanism that fills the gap, and the IRS notes that people in business for themselves will generally have to pay their tax this way.

It also covers more than income tax. According to IRS Publication 505, estimated tax is used to pay other taxes too, including self-employment tax, which is frequently the part a new owner has not budgeted for.

Who generally has to make estimated payments

The IRS's summary is that individuals, including sole proprietors, partners and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed. Corporations generally have to make them if they expect to owe $500 or more.

For individuals, the instructions to Form 1040-ES for 2026 set out a two-part general rule. In most cases you must pay estimated tax for 2026 if both of these apply:

• You expect to owe at least $1,000 in tax for 2026, after subtracting your withholding and refundable credits.
• You expect your withholding and refundable credits to be less than the smaller of 90% of the tax to be shown on your 2026 return, or 100% of the tax shown on your 2025 return (where that return covered a full 12 months).

If your adjusted gross income for 2025 was more than $150,000 ($75,000 if your 2026 filing status is married filing separately), the IRS substitutes 110% for 100% in the prior-year test. Farmers and fishermen have different rules. The details and the worksheet are in Publication 505 and Form 1040-ES.

The four payment periods, and why they are not quarters

The IRS divides the year into four payment periods, each with its own due date. They are usually called quarterly payments, but the periods are not equal: the second covers two months and the fourth covers four.

Publication 505 lists the periods and the due dates for tax year 2026 as follows.

1. 1.January 1 to March 31, 2026: due April 15, 2026
2. 2.April 1 to May 31, 2026: due June 15, 2026
3. 3.June 1 to August 31, 2026: due September 15, 2026
4. 4.September 1 to December 31, 2026: due January 15, 2027

If a due date falls on a Saturday, Sunday or legal holiday, the IRS treats a payment made on the next day that is not a weekend or holiday as on time. For a mailed payment the postmark date counts, but Publication 505 notes a recent USPS clarification: the postmark is the date the payment is processed at a postal facility, which may be later than the day it went in the mailbox. Fiscal-year taxpayers use different dates.

Why the January payment deserves the most attention

The fourth payment covers the last four months of the year and falls due in the middle of January, right after the holidays and before most owners have looked at their December figures.

It is also the only payment made after the year has ended. By then the income for 2026 has been earned, and the figure can be based on what actually happened rather than on a projection. That makes it the best opportunity of the year to correct an estimate that has drifted, provided somebody looks at the numbers in time.

In practice that means the books need to be current through at least November, and ideally reconciled through December, before the payment is worked out. A January estimate built from records that stop in September is still a guess.

Where the figure comes from

An estimate is only as good as the income figure underneath it. The IRS's own instructions start there: to figure estimated tax, you estimate the income you expect to earn for the year, then work through the Form 1040-ES worksheet.

For a self-employed owner that income figure is profit, and profit comes from the books. Where income and expenses are recorded and reconciled monthly, the year-to-date position is a report someone can run. Where the books are only brought up to date at year end, the estimate is built on last year's return or on memory, and both are unreliable in a year when the business has changed.

The practical inputs, before any calculation, are these:

• Profit to date from reconciled books, not a bank balance
• Anything unusual already in the year: a large contract, a new hire, an equipment purchase, a slow season
• What the rest of the year is realistically expected to look like
• Last year's total tax, which the prior-year test is measured against
• Estimated payments already made this year, and any overpayment applied from last year

When the year changes, the estimate can change

Estimated payments are not fixed at the start of the year. The IRS says that if you estimated your earnings too high, you can complete another Form 1040-ES worksheet to refigure your estimated tax for the next payment period, and the same applies if you estimated too low.

That is the real argument for keeping the books current during the year. A business whose profit jumps in the summer can adjust the September and January payments while there is still time. One that finds out the following spring can only report that the payments were short.

It also works in the other direction. An owner who keeps paying on the basis of a strong prior year during a weak one has effectively lent money to the Treasury for the rest of the year.

Underpayment penalties

If not enough tax was paid through withholding and estimated payments, the IRS may charge a penalty for underpayment of estimated tax. It applies period by period: according to the IRS, you may be charged a penalty for a period where too little was paid by its due date, even if you are due a refund when you file the return.

The IRS also notes that, generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholding and credits, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the prior year's return, whichever is smaller. Special rules apply to farmers, fishermen and certain higher-income taxpayers.

Owners whose income arrives unevenly have a further option. Where income is received unevenly during the year, the IRS says you may be able to avoid or lower the penalty by annualizing your income and making unequal payments, using Form 2210. That depends on records showing when the income was actually earned, which is another reason monthly books matter here.

Whether a penalty applies, and whether an exception or waiver is available, depends on your facts. Form 2210 and its instructions are the IRS's own route through it.

How payments are made

The Form 1040-ES instructions for 2026 list several ways to pay. The electronic options leave a dated record of what was paid and when, without relying on a postmark.

• IRS Direct Pay, for transfers from a checking or savings account
• The Electronic Federal Tax Payment System (EFTPS), which has no fee but requires enrollment in advance
• Your IRS online account, which also shows payment history
• Debit card, credit card or digital wallet, through IRS.gov/Payments; the service providers charge a fee
• Check or money order with the payment voucher from Form 1040-ES

Whatever the method, keep the confirmation. The return later takes credit for each estimated payment, and the payments on the return need to agree with what the IRS recorded.

Setting the money aside between payments

Knowing the figure is half the problem. The other half is having the cash on the due date, and for a business whose income arrives unevenly that is rarely automatic.

The simplest arrangements are the ones that do not depend on remembering. Some owners move a share of every deposit into a separate account kept only for tax, so the estimate is already sitting there when it falls due. Others review the balance at each month-end close and top it up. Which approach suits a business depends on how its cash moves, but the common feature is that the money leaves the operating account before it starts to look like spending money.

What tends to go wrong is not a lack of discipline. It is a strong month that makes the operating balance look comfortable, followed by an estimate due in a quiet one. Keeping the tax money visibly separate removes that illusion.

No percentage here is right for every business, and this page deliberately does not suggest one. The share worth setting aside depends on profit, entity type, other income and the state position, all of which are specific to you.

Common ways the January figure goes wrong

Most estimate problems are not calculation errors. They are input problems, and they show up most often in the fourth payment because it is worked out in a hurry after the holidays.

• December income or expenses not yet recorded when the figure is worked out
• Personal spending run through the business account, overstating expenses and understating profit
• Payments made earlier in the year not added up, or an overpayment from the prior year forgotten
• The prior-year test measured against the wrong return, or against a return that did not cover a full 12 months
• Self-employment tax left out of the estimate entirely
• The Massachusetts position assumed to follow the federal one without being checked

Every item on this list is a records problem before it is a tax problem. Books reconciled through December prevent most of them.

Massachusetts runs separately

Federal estimated payments say nothing about the state. Massachusetts has its own estimated-payment requirements, forms and schedule, administered by the Massachusetts Department of Revenue, and being current with the IRS does not mean being current with the Commonwealth.

This page deliberately does not list Massachusetts dates or thresholds. Confirm them directly with the Department of Revenue for the year in question, and make sure whoever works out your federal figure is looking at the state position at the same time, since both are built from the same books.

Settle who does what

Estimated payments involve three separate jobs, and they are often assumed rather than assigned: working out the figure, making the payment, and checking it against the year as the year changes.

Any arrangement can work, whether that is the owner doing all three, a preparer calculating and the owner paying, or something else. What does not work is each party assuming the other has it. It is worth writing down, in the same way as any other recurring deadline in the business.

• Who works out each payment, and from which figures?
• Who makes the payment, and from which account?
• Who revisits the estimate if the year changes, and when?
• Is the Massachusetts position being looked at alongside the federal one?
• Where are the payment confirmations kept for the return?

In short

Self-employed owners generally pay federal tax during the year through estimated payments, because nothing is withheld from business profit. For 2026 the IRS due dates are April 15, June 15 and September 15, 2026, and January 15, 2027, with the weekend and holiday rule applied.

The general rule turns on expecting to owe $1,000 or more, and on whether withholding and credits reach the smaller of 90% of this year's tax or 100% of last year's, or 110% at higher incomes. Penalties are figured period by period, and uneven income can be annualized.

The figure is only as good as the books behind it. If you take one step from this page, get the record current before the January payment is worked out, and have the year-end conversation while the year is still open.