Quarterly estimated taxes. How they work and how to avoid the penalty.
The US tax system is pay-as-you-go. W-2 employees have tax withheld every paycheck. LLC owners, freelancers, and S-Corp shareholders pay tax in quarterly installments. Miss a quarter and the IRS charges an underpayment penalty. This guide covers who owes, how to calculate, safe harbor rules that protect you from penalties, and the due dates for 2026.
Start here.
Anyone who expects to owe $1,000+ in federal tax for the year that is not covered by withholding. LLC owners, freelancers, S-Corp owners with high distributions, anyone with significant investment income.
Due April 15, June 15, September 15, January 15 (of following year). Each covers the prior period's income.
Pay either 100% of last year's tax (110% if AGI > $150k) OR 90% of current year tax. Meeting safe harbor eliminates underpayment penalty.
Most states with income tax also require quarterly payments. Due dates often match federal but not always.
IRS underpayment penalty is the federal short-term rate + 3% (currently about 8% annualized). Applied per underpaid quarter.
The full explanation.
How to calculate
Three methods: (1) Annualized method: estimate current-year income, apply tax brackets, divide by 4. (2) Prior-year safe harbor: total tax from last year ÷ 4 each quarter. (3) Current-year safe harbor: 90% of expected current year tax ÷ 4. Most LLC owners use prior-year safe harbor for simplicity, then true up at year-end.
Federal income tax + SE tax
LLC owners pay both regular federal income tax AND self-employment tax through quarterly payments. SE tax is 15.3% on net SE earnings up to $168,600 (2024 SS wage base), 2.9% Medicare on amounts above (plus 0.9% Additional Medicare for high earners).
S-Corp owners
S-Corp owner-employees have FICA withheld from their W-2 wages, which counts as withholding. Quarterly estimated tax still needed for the distribution portion of income (not subject to withholding) and any other income.
How to pay
IRS Direct Pay (free, from bank account), EFTPS (Electronic Federal Tax Payment System, free), credit card (third-party processor fees apply), check by mail with Form 1040-ES voucher. State payments via state DOR portal.
Annualized income installment
If income is uneven (e.g., a big Q4 sale), you can use Form 2210 Schedule AI to calculate quarter-by-quarter income and avoid penalty on quarters when income was low. Common for seasonal businesses.
Penalty calculation
IRS Form 2210 calculates penalty per quarter underpaid. Penalty stops accruing when the underpayment is made up (in a later quarter) or by the tax-return filing date.
Withholding alternative
If you have W-2 income (yours or spouse's), increasing W-2 withholding via W-4 update can replace estimated payments. Withholding is treated as paid evenly through the year regardless of when actually withheld.
Worked example: 2026 quarterly tax for a single-member LLC
| Expected 2026 net profit | $120,000 |
| Federal income tax (after QBI deduction) | $18,000 |
| SE tax (15.3% × $120k × 92.35%) | $16,955 |
| Total expected federal tax | $34,955 |
| Quarterly payment | $8,739 each quarter ($34,955 / 4) |
| Q1 due April 15, 2026 | $8,739 |
| Q2 due June 15, 2026 | $8,739 |
| Q3 due September 15, 2026 | $8,739 |
| Q4 due January 15, 2027 | $8,739 |
Common questions.
When are quarterly estimated taxes due?
What if I miss a quarterly payment?
How do I know if I owe quarterly taxes?
Can I just pay it all in one quarter?
What is the safe harbor?
Do I pay state quarterly taxes too?
Does QBI deduction reduce my quarterly payment?
What if my income drops mid-year?
Can my accountant handle this?
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This guide is educational. Specific situations require professional advice from a licensed CPA or tax attorney.
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