Quarterly Estimated Taxes: How Business Owners Figure and Pay Them

The federal income tax is collected as the year goes. In the words of the IRS estimated taxes page, taxes “must be paid as you earn or receive income during the year, either through withholding or estimated tax payments.” An employee's paycheck has tax withheld. A sole proprietor, a partner or an S corporation shareholder has none withheld from business profit, so the income tax and self-employment tax on that profit go to the IRS in four installments. This guide covers who has to pay, how to work out the amount on the Form 1040-ES worksheet, the safe harbors, the method for uneven income, how to pay, how the penalty is figured and the withholding option for S corporation owners.

Who has to make estimated tax payments

According to Form 1040-ES (2026), an individual generally has to pay estimated tax for 2026 when both of these are true:

• You expect to owe at least $1,000 for 2026 after subtracting withholding and refundable credits.
• You expect withholding and refundable credits to be less than the smaller of 90% of your 2026 tax or 100% of the tax on your 2025 return, if that return covered all 12 months. The 100% becomes 110% if your 2025 adjusted gross income was more than $150,000 ($75,000 if married filing separately).

The first test is a floor and the second is the safe harbor explained below. There is also a clean exception: you owe no estimated tax for 2026 if you had no tax liability for 2025, were a U.S. citizen or resident alien for all of 2025 and your 2025 tax year covered 12 months (IRC 6654(e)). And you do not have to start paying until you have income on which you will owe tax (Publication 505). How the rules apply depends on how the business is taxed:

For pass-through owners, the estimated payments follow the profit onto the owner's own return. The IRS says individuals “including sole proprietors, partners, and S corporation shareholders” generally use Form 1040-ES to figure the tax, and that S corporation shareholders “report the flow-through of income and losses on their personal tax returns” (IRS S corporations page). Partners are in the same position, because a partnership generally passes its profits through to them (Instructions for Form 1065).

2026 estimated tax due dates and the four payment periods

The payments are called quarterly, but the periods are not equal quarters. Each installment covers the income earned in a period of two, three or four months (Publication 505):

• The January payment is optional if you file your 2026 return by February 1, 2027 and pay the entire balance with it.
• Weekends and holidays move the date. January 15, 2028 is a Saturday and January 17, 2028 is Martin Luther King Jr. Day, so the last 2027 installment is due Tuesday, January 18, 2028.
• Mailed payments are on time if the U.S. postmark is on or before the due date, but Form 1040-ES warns that the postmark date is the date the payment is processed at a USPS facility, which may be later than the day you drop it off.
• Fiscal-year taxpayers pay on the 15th day of the 4th, 6th and 9th months of the fiscal year and the 1st month of the next one.
• Calendar-year corporations, C or S, pay on April 15, June 15, September 15 and December 15, 2026 (Publication 509).

These are the estimated tax dates only. Every other federal filing and deposit deadline, by entity type, is on the business tax calendar.

How to calculate quarterly estimated taxes

The 2026 Estimated Tax Worksheet in Form 1040-ES is a projection of your 2026 Form 1040. Start from your 2025 return, then adjust for what you expect to change: a bigger contract, a new hire, an equipment purchase, a new deduction. The lines that matter most:

Self-employment tax on the worksheet

Line 9 comes from the 2026 Self-Employment Tax and Deduction Worksheet. Multiply expected net profit by 92.35%. Apply 2.9% to all of that amount and 12.4% to the part up to $184,500, the 2026 social security wage base, minus any wages you expect that are already subject to social security tax. Half of the total is deductible when you figure line 1. Net profit comes from Schedule C line 31, Schedule F line 34 or box 14, code A, of a partnership Schedule K-1. How the wage base works, and why wages from a job use it up first, is covered in FICA tax limit.

What counts as last year's tax

For line 12b, the 2025 tax is the amount on line 24 of your 2025 Form 1040, reduced by a few items the Form 1040-ES instructions list, such as unreported social security and Medicare tax and refundable credits. If you did not file a 2025 return, or your 2025 tax year was shorter than 12 months, skip the prior-year option: line 12c is simply 90% of this year's estimate.

Estimated tax example for a self-employed owner

Illustration only. Round, hypothetical numbers for a single filer who expects $120,000 of 2026 net profit from a sole proprietorship, has no other income and no withholding, takes the standard deduction and the qualified business income deduction, and owed $18,000 of total tax for 2025 on AGI under $150,000. Federal only.

Four payments of $4,500, on April 15, June 15 and September 15, 2026 and January 15, 2027, meet the prior-year safe harbor, so no underpayment penalty applies. They do not pay the year's tax: about $10,462 is still due by April 15, 2027. Paying one-fourth of the full estimate instead, $7,115.50 per installment, leaves little or nothing to pay at filing. Had 2025 AGI been over $150,000, line 12b would be 110% of $18,000, or $19,800, and each installment $4,950.

Safe harbors: how to avoid the estimated tax penalty

The penalty turns on whether you paid enough, on time, for each period, not on whether you owed tax in April. The tests (IRC 6654, IRC 6655):

The prior-year test is the easier one to plan around in a growing business: the number is fixed once the 2025 return is done, and a strong year does not change it. The current-year test fits a year when income is falling. Either way, a safe harbor protects you from the penalty, not from the balance. As Form 1040-ES puts it, “Even if you pay the required annual payment, you may still owe tax when you file your return.”

Timing matters as much as the total. The penalty is figured separately for each payment period, so a large payment in January does not cure a short payment in April (Publication 505). The two ways around that are the annualized method below and withholding, which the law spreads evenly across the year.

Uneven income: the annualized income installment method

The regular method assumes income arrives evenly. A seasonal business, or one that earns most of its profit late in the year, can instead base each installment on the income actually earned by the end of each period. On Schedule AI of Form 2210, you annualize the income for each period, figure the tax on it and apply a set percentage:

Each required installment is the smaller of the annualized amount or the regular installment. Whatever you skip early is added back to the next regular installment, so by January the total still reaches the required annual payment (IRC 6654(d)(2)).

Illustration only, round numbers. A seasonal owner's required annual payment is $18,000, or $4,500 per regular installment. The tax on the income earned through each date, annualized (Schedule AI line 19), comes to $6,000, $9,000, $14,000 and $28,000.

The owner pays $1,350 in April instead of $4,500, and the payments catch up as the income arrives, with no penalty. To get that result, check box C in Part II of Form 2210 and attach Schedule AI; Form 1040-ES says to file Form 2210, “including Schedule AI, with your 2026 tax return even if no penalty is owed.” Corporations use Form 2220, which also allows an adjusted seasonal installment method (Instructions for Form 2220).

How to pay estimated taxes online, by phone or by mail

For individuals, Form 1040-ES lists these options:

• Businesses can make most business tax payments, including estimated taxes and federal tax deposits, through an IRS business tax account or Direct Pay for businesses; some still have to go through EFTPS (IRS).
• Corporations must pay electronically. EFTPS accepts same-day payments of $1 million or less submitted before 3:00 p.m. Eastern on a business day; larger payments must be submitted by 8:00 p.m. Eastern the day before the due date. A corporation that overpaid may be able to get a quick refund on Form 4466 (Instructions for Form 1120).
• More than four payments is fine. You can pay weekly, every two weeks or monthly, as long as enough is paid by each due date.
• A 2025 overpayment can count. Credit it to 2026 estimated tax on your 2025 return. If that return is filed on time, the credit is treated as paid on April 15, 2026, and you cannot get it back until you file your 2026 return (Publication 505).
• Mailing to a P.O. box on the voucher address list requires the U.S. Postal Service; a private delivery service cannot deliver there.
• U.S. dollars only. The IRS does not accept digital assets.

Keep a record of each payment's date and amount. Form 1040-ES includes a record table for this, and the total goes on your 2026 return.

The estimated tax penalty and how it is figured

The underpayment penalty works like interest. For each installment, the IRS takes the amount you were short, multiplies it by the underpayment rate and by the number of days it stayed unpaid, divided by 365. The period runs from the due date until you pay or until the 15th day of the fourth month after the year ends, April 15 for calendar-year filers, whichever comes first. Payments are applied to the earliest unpaid installment first, so a catch-up payment fixes the oldest shortfall before the newest (IRC 6654(b)).

The rate is the federal short-term rate plus 3 percentage points, set every quarter under IRC 6621. For 2026:

Illustration: the owner in the example above pays the September 15, 2026 installment of $4,500 on December 15, 2026, 91 days late. At 7%, the penalty is $4,500 × 7% × 91 ÷ 365 = $78.53.

You usually do not have to work it out yourself. Unless box B, C or D in Part II of Form 2210 applies, the IRS “will figure it and send you a bill for any unpaid amount” (Form 2210). The IRS also notes that a penalty can apply even when you are due a refund, because the test is whether each payment was made on time. The IRS can waive it when the underpayment was caused by a casualty, disaster or other unusual circumstance, or when you retired after reaching age 62 or became disabled during the year or the year before and the underpayment was due to reasonable cause (Instructions for Form 2210). Corporations figure their penalty on Form 2220 and report it on line 34 of Form 1120.

S corporation owners: withholding instead of estimated payments

An S corporation makes estimated payments only for the entity-level taxes in the table above (Instructions for Form 1120-S), so the tax on its profit is the shareholders' to pay. An owner who works in the business and takes a W-2 salary has a second way to pay it: extra federal income tax withheld from that salary. Form 1040-ES says wage earners “may be able to avoid having to make estimated tax payments on your other income by asking your employer to take more tax out of your earnings.” The extra amount per paycheck goes in Step 4(c) of Form W-4.

Withholding has a timing advantage estimated payments lack. Unless you elect otherwise, all income tax withheld during the year is treated as paid in equal parts on the four due dates, whichever paychecks it came from (IRC 6654(g)). Extra withholding from a November or December payroll is spread back across the year, while a late estimated payment counts only from the day it is made. If the actual dates would give a lower penalty, box D on Form 2210 lets you use them instead.

The trade-off is that the withholding has to run through real payroll, deposited on the company's payroll tax deposit schedule and reported on its payroll returns. BEG runs owner payroll, including the withholding, deposits and filings, through Managed Payroll, from $25 per employee per month. How the salary and the pass-through profit split, and what that does to self-employment tax and the QBI deduction, is covered in S corp vs LLC.

Refiguring estimated tax during the year

Estimates are not locked in. When income jumps or drops, or a large deduction such as a section 179 equipment purchase changes the year, refigure the worksheet and use Worksheet 2-12 in Publication 505 for the remaining payments: multiply the new total by 50% if the next payment is due June 15, 75% if it is due September 15 or 100% if it is due January 15, then subtract what you have already paid.

Illustration, round numbers: an owner estimated $20,000 for the year and paid $5,000 on April 15 and on June 15. In July a large contract lifts the refigured estimate to $32,000. The September 15 payment becomes $32,000 × 75% − $10,000 = $14,000, and the January 15 payment $8,000 if nothing else changes.

Refiguring does not erase a shortfall in the earlier periods. On the current-year test, the April and June installments should each have been $7,200 (25% of 90% of $32,000), so each $5,000 payment was short, and Publication 505 warns that a penalty may apply to the periods before you changed your payments. The annualized method can reduce or remove it if the income really arrived late. If the prior-year safe harbor already covers you, a bigger year changes what you owe at filing, not your required installments. Corporations also refigure their installments when the year changes, and can owe a penalty on earlier installments that were too small (Instructions for Form 1120).

State estimated taxes

States that tax income set their own estimated payment rules, thresholds and due dates, and a federal payment covers only federal tax. Check your state tax agency's site for its forms and schedule.

Sources: 26 U.S.C. 6654, failure by individual to pay estimated income tax; 26 U.S.C. 6655, failure by corporation to pay estimated income tax; 26 U.S.C. 6621, determination of rate of interest; IRS, Form 1040-ES (2026), Estimated Tax for Individuals; IRS Publication 505 (2026), Tax Withholding and Estimated Tax; IRS Publication 509 (2026), Tax Calendars; IRS, Estimated taxes; IRS, Form 2210 (2025), including Schedule AI; IRS, Instructions for Form 2210 (2025); IRS, Instructions for Form 2220 (2025); IRS, Instructions for Form 1120 (2025); IRS, Instructions for Form 1120-S (2025); IRS, Instructions for Form 1065 (2025); IRS, S corporations; IRS, Quarterly interest rates; IRS, IR-2026-98, interest rates remain the same for the fourth quarter of 2026; IRS, Form W-4 (2026). Figures and rules checked against these sources on September 25, 2026. This is general information, not tax advice for your situation. Tax services are provided by licensed tax professionals under a separate engagement agreement. BEG does not provide tax advice.