Quarterly estimated taxes: a guide for small business owners

Published Wednesday 10 June 2026

Table of contents

• What are quarterly estimated taxes?
• Who needs to pay quarterly estimated taxes?
• Benefits of paying quarterly estimated taxes
• When are quarterly estimated taxes due?
• How to estimate quarterly taxes
• How much to set aside for quarterly taxes
• How to make quarterly estimated tax payments
• State estimated tax requirements
• Common mistakes to avoid with quarterly estimated taxes
• Penalties for missing or underpaying quarterly estimated taxes
• Simplify quarterly tax payments with Xero
• FAQs on quarterly estimated taxes

Key takeaways

• If you expect to owe $1,000 or more in federal taxes for the year and that amount isn't withheld from your pay, you're required to make quarterly estimated tax payments to the IRS.
• Quarterly estimated taxes are due on April 15, June 15, September 15, and January 15, and you can pay online through IRS Direct Pay, your IRS online account, or a card payment processor.
• Safe harbor rules protect you from underpayment penalties if you pay at least 90% of your current year's tax liability or 100% of last year's liability (110% if your adjusted gross income exceeded $150,000).
• Setting aside 25–30% of your net self-employment income throughout the year helps you stay prepared for each quarterly payment without straining your cash flow.

What are quarterly estimated taxes?

Quarterly estimated taxes are payments you send to the IRS four times a year to cover federal income tax and self-employment tax that aren't withheld from your earnings. The US tax system operates on a pay-as-you-go basis, which means the IRS expects you to pay taxes on income as you earn it rather than waiting until you file your annual return.

When you work as an employee, your employer withholds income tax from each paycheck. But if you're self-employed, freelancing, or running your own business, no one withholds taxes for you. Quarterly estimated payments fill that gap by spreading your tax obligation across four installments throughout the year.

These payments typically cover two types of tax: federal income tax on your earnings and self-employment tax (which funds Social Security and Medicare). Learn more about estimated taxes from the IRS.

Who needs to pay quarterly estimated taxes?

You need to pay quarterly estimated taxes if you expect to owe $1,000 or more in federal taxes for the year and that amount isn't being withheld from wages or other payments. This applies to most self-employed individuals, freelancers, and small business owners.

The IRS also requires quarterly payments if you have self-employment income of $400 or more, since that triggers self-employment tax (the 15.3% tax that covers Social Security and Medicare).

Here are the types of taxpayers who typically need to make estimated payments:

• Freelancers, independent contractors, and gig workers
• Sole proprietors
• Single-member and multi-member LLC owners
• Partners in partnerships and S-Corp shareholders
• Investors with significant capital gains or dividend income
• Retirees who don't have enough tax withheld from retirement distributions

Corporations follow a different threshold and must pay estimated taxes if they expect to owe $500 or more for the year.

Safe harbor rules

Even if you owe more than $1,000, you can avoid underpayment penalties through the safe harbor rule. You're protected if you pay at least 90% of your current year's tax liability or 100% of your prior year's tax liability, whichever is less.

If your 2025 adjusted gross income (AGI) was higher than $150,000 (or $75,000 if you filed as married filing separately), the threshold increases to 110% of last year's tax liability.

First year in business

If this is your first year of self-employment, you may not need to make estimated payments right away. Since the safe harbor rule is based on your prior year's tax liability, and you likely had little or no self-employment tax liability the year before, you generally won't face penalties for skipping estimated payments in year one. That said, setting money aside from the start helps you avoid a large tax bill when you file your return.

Benefits of paying quarterly estimated taxes

Paying quarterly estimated taxes does more than keep you compliant with IRS requirements. It also helps you manage your finances throughout the year.

• Avoid penalties and interest: Making on-time payments helps you steer clear of the IRS underpayment penalty, which accrues on each missed or short payment.
• Manage cash flow: Spreading your tax obligation across four payments is easier on your cash flow than paying a lump sum in April.
• Stay IRS-compliant: Consistent payments show the IRS you're meeting your pay-as-you-go obligation, reducing the chance of notices or audits.
• Prevent surprise tax bills: When you pay as you go, you're less likely to face an unexpectedly large balance when you file your annual return.

When are quarterly estimated taxes due?

Estimated quarterly taxes are due on the 15th of the month following the end of each quarter. The IRS uses a slightly different quarterly schedule than the standard calendar quarters, so it's worth noting the exact dates.

Here are the quarters and their due dates:

• Q1 (January 1 – March 31): April 15
• Q2 (April 1 – May 31): June 15
• Q3 (June 1 – August 31): September 15
• Q4 (September 1 – December 31): January 15

If the 15th falls on a weekend or federal holiday, the due date shifts to the next business day.

There's also an alternative for the Q4 payment: if you file your annual tax return and pay the full balance by February 1, you can skip the January 15 estimated payment entirely.

How to estimate quarterly taxes

There are two main ways to calculate your quarterly estimated taxes. The right method depends on how predictable your income is and how much effort you want to put into the calculation.

Option 1: pay 100% of last year's tax liability

This is the simplest approach for most small business owners. You take the total tax you owed last year and divide it by four.

For example, if your 2025 tax return shows you owed $12,000 in total tax, you'd send $3,000 to the IRS each quarter in 2026. This method satisfies the safe harbor rule, so you won't face underpayment penalties even if your actual 2026 liability turns out to be higher.

If your AGI was more than $150,000 in 2025, you need to pay 110% of last year's liability. Using the same example, that would be $12,000 x 1.1 = $13,200, or $3,300 per quarter.

Most tax preparation software generates payment vouchers with these amounts already calculated, making this option almost effortless.

Option 2: use the Form 1040-ES worksheet

The IRS Form 1040-ES worksheet helps you estimate your tax liability based on your expected income for the current year. This method is more accurate if your income has changed significantly from last year.

Here's a simplified example of how the calculation works:

1. Estimate your total income for the year (for example, $80,000 in net self-employment income)
2. Calculate your self-employment tax: $80,000 x 92.35% x 15.3% = $11,304
3. Subtract the deductible half of self-employment tax: $11,304 / 2 = $5,652
4. Calculate your adjusted gross income: $80,000 - $5,652 = $74,348
5. Estimate your federal income tax based on your filing status and tax bracket
6. Add your estimated income tax and self-employment tax together
7. Subtract any credits or withholding you expect
8. Divide the remaining amount by four for your quarterly payment

The 1040-ES worksheet walks you through each step in detail. If the math feels overwhelming, your accountant or bookkeeper can help you run the numbers.

How much to set aside for quarterly taxes

A common rule of thumb is to set aside 25–30% of your net self-employment income for federal taxes. This percentage covers both income tax and the 15.3% self-employment tax.

Your actual percentage depends on your tax bracket, filing status, and deductions. Here's a general guide:

• Lower-income earners (under $50,000 net): 20–25% is often enough
• Mid-range earners ($50,000 - $150,000 net): 25–30% is a safe target
• Higher earners (over $150,000 net): 30–35% or more may be necessary

The easiest way to stay on track is to transfer a fixed percentage of each payment you receive into a separate savings account. That way, the money is ready when your quarterly payment comes due. Using expense tracking software can help you monitor your income and keep your tax savings on target.

How to make quarterly estimated tax payments

You have several options for sending your estimated tax payments to the IRS. Choose the method that works best for your situation.

Option 1: IRS Direct Pay

IRS Direct Pay lets you make free payments directly from your bank account. Visit the IRS Direct Pay page, select "Estimated Tax" as the payment type, and choose the tax form associated with your payment (for example, 1040 for individuals or 1120 for corporations).

You'll need to verify your identity using your AGI from a prior year's tax return if paying as an individual, or your business name and employer identification number (EIN) if paying for your business.

Option 2: IRS online account

You can make payments through your IRS online account. The IRS offers separate online accounts for individuals and businesses. You can pay by bank transfer or use a third-party service for credit or debit card payments.

Option 3: credit or debit card through a payment processor

The IRS works with private payment processors that accept credit cards, debit cards, and digital wallets. Processing fees apply and vary by provider. The IRS website lists the current processors and their fees.

These processors also offer a cash payment option. The service generates a barcode you can take to participating retailers like 7-Eleven, Walgreens, or CVS. Allow extra time for this option, as barcode generation can take a few days.

Option 4: EFTPS (for business payments)

The Electronic Federal Tax Payment System (EFTPS) is available for business tax payments, including corporate estimated taxes. As of 2026, EFTPS is no longer available for individual quarterly estimated tax payments. Individual taxpayers should use IRS Direct Pay, an IRS online account, or a card or digital wallet payment processor instead.

Option 5: mail a check or money order

You can mail your payment with the vouchers from your prior year's tax return or with Form 1040-ES. Write your tax ID number, the quarter, the tax year, and "estimated tax payment" on the memo line of your check or money order.

Check the Form 1040-ES instructions for the correct mailing address based on your state.

State estimated tax requirements

Federal quarterly estimated payments only cover your federal tax obligation. Most states with an income tax also require their own estimated quarterly payments.

Each state sets its own rules for payment thresholds, due dates, and calculation methods. Some states follow the same quarterly schedule as the IRS, while others use different dates. A few states, like Texas, Florida, and Wyoming, don't have a state income tax and don't require estimated payments at all.

Check your state's department of revenue website for specific requirements. If you earn income in multiple states, you may need to make estimated payments to each one. Your accountant can help you sort out which states apply to your situation.

Common mistakes to avoid with quarterly estimated taxes

Many small business owners run into the same pitfalls when managing their quarterly tax payments. Here are five mistakes to watch for.

• Underpaying your estimates: If your income grows during the year, your original estimate may fall short. Review your income each quarter and adjust your payments if needed.
• Missing deadlines: Late payments trigger penalties and interest, even if you pay the full amount shortly after the due date. Set calendar reminders for each due date.
• Forgetting self-employment tax: Your quarterly payments need to cover both income tax and the 15.3% self-employment tax. Leaving out the self-employment portion leads to underpayment.
• Mixing personal and business expenses: When personal and business spending is tangled together, it's harder to track your actual business income and estimate taxes accurately. Keep separate bank accounts for your business.
• Poor record-keeping: Without organized records of income and expenses, your estimates are guesswork. Track your finances consistently so you can prepare for tax season with confidence.

Penalties for missing or underpaying quarterly estimated taxes

The IRS charges an underpayment penalty if you don't pay enough estimated tax during the year. The penalty applies to each quarter individually, so you could owe a penalty for one quarter even if you overpaid in another.

The underpayment penalty rate is based on the federal short-term interest rate plus 3 percentage points. The IRS updates this rate quarterly. The penalty accrues from the due date of the missed payment until you pay the amount owed or until your annual return due date, whichever comes first.

On top of the underpayment penalty, the IRS charges a failure-to-pay penalty of 0.5% per month on any unpaid tax balance, up to a maximum of 25%. Interest also accrues on the unpaid amount.

You can avoid penalties entirely by meeting the safe harbor thresholds: pay at least 90% of your current year's tax liability or 100% of last year's liability (110% if your AGI exceeded $150,000). The IRS may also waive penalties if you underpaid due to a casualty, disaster, or other unusual circumstance.

Simplify quarterly tax payments with Xero

Staying on top of quarterly estimated taxes is easier when your financial records are organized and up to date. Xero's cloud accounting software automatically tracks your income and expenses, so you always have an accurate picture of your earnings when it's time to calculate your next payment.

With features like automatic bank reconciliation, real-time reporting, and expense categorization, you can quickly see where your business stands at any point in the quarter. You can also share access with your accountant or bookkeeper so they can help you stay on track. To see how Xero can simplify your quarterly tax process, get one month free.

FAQs on quarterly estimated taxes

Here are answers to frequently asked questions about quarterly estimated taxes.

What happens if I miss a quarterly tax payment?

Missing a quarterly payment results in an underpayment penalty and interest, calculated from the original due date and reported when you file your annual return. If you've missed a payment, send it as soon as possible to minimize the penalty.

Do I need to pay quarterly taxes in my first year of business?

Usually not, since the safe harbor rule is based on your prior year's tax liability, and you likely had little or no self-employment liability before starting your business. Setting money aside from the start helps you avoid a large tax bill when you file your first return.

Can I use my tax refund to pay estimated taxes?

Yes, when you file your annual return, you can apply part or all of your refund to next year's estimated tax payments across one or more quarters. This simplifies your first-quarter payment for the new tax year.

What if my income varies significantly quarter to quarter?

You can use the annualized income installment method on IRS Form 2210 Schedule AI, which lets you base each quarterly payment on the income you actually earned during that period. This can reduce your payments in slower quarters, though it requires more paperwork.

Can I pay more than the required quarterly amount?

Yes, overpayments are applied as a credit when you file your annual return, and the IRS will refund any excess. Try to avoid overpaying by a large amount, since that money could be working for your business during the year.

Do quarterly estimated tax payments cover state taxes?

No, federal estimated payments only cover your federal income tax and self-employment tax. Most states with an income tax require separate quarterly payments with their own due dates and thresholds.