Quarterly Estimated Taxes for Business Owners

Business Finance Guide · Taxes

Pay as you earn: quarterly estimated taxes

Who must pay, the 2026 due dates and the safe harbors that keep you penalty-free.

$1,000federal threshold: tax you expect to owe

4federal payment dates a year

7%IRS underpayment interest rate, Q4 2026

Quarterly estimated taxes are how business owners, freelancers and partners pay income tax and self-employment tax during the year, since no employer withholds it from their profit.

The U.S. tax system is pay-as-you-go. Employees pay through withholding on every paycheck. When you own a business, the IRS expects you to do the same thing yourself, in four installments. In its own words: if you are in business for yourself, you generally need to make estimated tax payments. Those payments cover not only income tax but also self-employment tax, which runs 15.3% of net earnings.

Skip them, and two things happen. You face one large bill in April that can drain your cash, and you may owe a penalty, even if you end up due a refund. California adds its own estimated tax with a schedule that does not match the federal one. This guide covers both.

Who must pay quarterly estimated taxes

Federally, individuals, including sole proprietors, partners and S corporation shareholders, generally must make estimated payments if they expect to owe $1,000 or more when they file. Corporations must pay if they expect to owe $500 or more.

You do not have to pay federal estimated tax for the current year if all three of these are true: you had no tax liability for the prior year, you were a U.S. citizen or resident for the whole year, and your prior tax year covered 12 months. That exception helps some first-year owners, but only if last year’s total tax was truly zero.

California sets a lower bar. The Franchise Tax Board (FTB) says you generally must make estimated payments if you expect to owe at least $500 ($250 if married or a registered domestic partner filing separately), and your withholding and credits will be less than the smaller of 90% of this year’s tax or 100% of last year’s.

2026 due dates: federal and California

The year is split into four payment periods, and they are not equal quarters. The second period is only two months long, and the last payment lands in January of the following year.

Three rules help with timing. If a due date falls on a weekend or legal holiday, the payment is on time the next business day. If you mail a payment, the U.S. postmark date counts. And under IRS Publication 505, if you file your 2026 return by January 31, 2027 and pay the full balance, you do not need to make the January 15, 2027 federal payment.

Safe harbors: how to avoid the penalty

You do not have to predict your tax to the dollar. The IRS says most taxpayers avoid the underpayment penalty if they owe less than $1,000 after withholding and credits, or if they paid at least the smaller of:

• 90% of this year’s tax, or
• 100% of last year’s tax, as long as last year’s return covered 12 months.
• If your adjusted gross income (AGI) last year was more than $150,000 ($75,000 if married filing separately), the prior-year safe harbor rises to 110%.

The prior-year safe harbor is the favorite of many growing businesses, because last year’s tax is a known number. Divide it into four equal payments and you are protected even if this year turns out better than expected; you simply pay the rest in April.

California follows the same 90%, 100% and 110% tests, using California AGI. One difference matters for high earners: if your California AGI this year is $1 million or more ($500,000 if married or an RDP filing separately), the FTB says you must base your estimate on 90% of this year’s tax; the prior-year safe harbor is not available.

How to figure your payment

Individuals use the worksheet in Form 1040-ES; California uses the worksheet in the Form 540-ES instructions. Both start the same way: estimate your income, deductions and credits for the year, using last year’s return as a guide. Your profit and loss statement is the best source for year-to-date profit.

Refigure every quarter. The IRS encourages owners whose income changes to complete a new worksheet and adjust the next payment, up or down. If your income is seasonal, such as a landscaper who earns most in summer or a retailer who earns most in December, the annualized income method on Form 2210 (Form 2220 for corporations) may let you make smaller payments early in the year without a penalty.

How to pay

• Federal, online: your IRS online account at IRS.gov/account, IRS Direct Pay, the IRS app, or for businesses the business tax account or Direct Pay for businesses. Some business payments still go through the Electronic Federal Tax Payment System (EFTPS).
• Federal, by mail: a check with the Form 1040-ES payment voucher.
• California, online: FTB Web Pay from a bank account, or a credit card.
• California, by mail: Form 540-ES vouchers to the Franchise Tax Board, PO Box 942867, Sacramento, CA 94267-0008; one voucher per due date.
• More often is fine: the IRS says you may pay weekly, every two weeks or monthly, as long as enough is paid by the end of each period.

What the penalty costs

The estimated tax penalty works like interest on the amount you underpaid, for the time it was late. For individuals, the IRS rate equals the federal short-term rate plus 3 percentage points, reset every quarter. For October 1 to December 31, 2026, the IRS set the underpayment rate at 7%, the same as the third quarter.

The IRS may waive the penalty if the underpayment came from a casualty, disaster or other unusual circumstance, or if you retired after age 62 or became disabled during the year or the year before and the underpayment was due to reasonable cause.

A simple system that works

Common mistakes with quarterly estimated taxes

• Using federal percentages for California. The FTB wants 30% in April and 40% in June, not 25% each.
• Forgetting self-employment tax. Estimated payments must cover it, not only income tax.
• Missing the 110% rule. Owners with AGI over $150,000 need 110% of last year’s tax to be safe.
• Paying everything in January. A late payment can still draw a penalty for earlier periods.
• Spending the set-aside. Tax money mixed with operating cash rarely survives a slow month; a weekly cash flow forecast helps.

Key terms

• Estimated tax: tax paid during the year on income that has no withholding.
• Safe harbor: a payment level that protects you from the penalty, such as 100% of last year’s tax.
• Annualized income method: a way to match payments to uneven income using Form 2210.
• Form 1040-ES: the IRS worksheet and vouchers for individual estimated tax.
• Form 540-ES: California’s estimated tax vouchers for individuals.

The bottom line: quarterly estimated taxes are simply your withholding, paid by you. Use the prior-year safe harbor when you can, follow California’s 30-40-0-30 schedule, keep the money in its own account and review each quarter. Your April will be calm, and your cash plan will be honest.

Free help in the Sacramento region

You do not have to work through these decisions alone. SCORE Sacramento pairs owners with volunteer mentors, many of them retired executives, bankers and accountants, at no cost. The Sacramento Valley Small Business Development Center offers free one-on-one advising on financing, budgeting and financial statements. The SBA’s Sacramento District Office can explain loan programs and connect you with lenders, and community lenders such as California Capital and Opening Doors serve owners who need smaller loans or extra support. Browse our Business Resources and the free business help guide for more.

Frequently asked questions

Sources

• IRS: Estimated taxes
• IRS: Publication 505 (2026), Tax Withholding and Estimated Tax
• IRS: Pay as you go, so you won’t owe (estimated tax due dates)
• IRS: About Form 1040-ES, Estimated Tax for Individuals
• IRS: Interest rates remain the same for the fourth quarter of 2026
• IRS: Self-employment tax (Social Security and Medicare taxes)
• California Franchise Tax Board: Estimated tax payments