Setting out on your own by starting a new business is an adventure that takes a tremendous amount of work, no matter how well you’ve prepared—or whether you’ve done it before. There are many moving parts to keep track of and thousands of things that can go wrong, so it takes vigilance and dedication.
However, there are some things you can do to make the entrepreneurial learning curve a little more manageable. You can improve your chances of success by taking the time to learn about your compliance and tax requirements as the owner of a small business.
If you’ve started a business before, you know that the tax obligations can be rather complicated. And if you’ve never been self-employed before as an independent contractor or freelancer, you might not have any experience with quarterly taxes as an important requirement.
Key takeaways
When freelancers, contractors, and other small business owners receive income that’s not automatically taxed, they typically must make quarterly estimated tax payments throughout the year.
You can calculate these payments by estimating your annual income and taxes owed, then dividing that total into four installments.
Paying on time each quarter can help you avoid penalties, reduce stress, and keep your cash flow predictable.
What are quarterly taxes?
Quarterly taxes are estimated tax payments made in each quarter in advance of the annual tax return. Each quarter, you pay a portion of your expected income tax for the tax year, but the payments are estimated because they occur before you fill out your tax return.
The United States income tax system requires you to pay as you go with estimated taxes throughout the year instead of paying all of the tax liability you owe at the very end of the year. The quarterly taxes and their deadlines give individuals and businesses a structure for making these regular installments toward their final income tax due.
Who needs to pay quarterly taxes?
Generally speaking, everyone who expects to file and pay federal income taxes needs to pay quarterly taxes. If you paid anything in taxes last year, you might need to pay estimated taxes if you or your business fits into one of these categories:
Self-employed
Partners
Corporations
Who does not need to pay quarterly taxes?
In practice, individuals might not need to make estimated payments if they expect to owe less than $1,000 on their return (after withholdings and credits). Corporations might not need to pay quarterly taxes if they expect to owe less than $500 at the end of the year.
Of course, the most common way individuals avoid paying estimated taxes is by receiving a salary from an employer. If you file a Form W-4 and are paid as an employee by another individual or organization, then your employer will withhold part of your wages to pay quarterly taxes on your behalf. Technically, every employee still pays quarterly taxes, but you don’t have to remember or estimate them on your own, since your employer should be doing it for you.
If you’re self-employed and receive part of your income through an employer, you might need to pay additional estimated taxes for your self-employed income. Alternatively, you can adjust your W-4 to have your employer withhold a greater portion of your salary and offset your other income.
How do you calculate quarterly taxes?
The best way to calculate your quarterly taxes is by using an estimate of your total expected income for the current year. If you expect to earn the same as you did last year, then start with the previous year’s total. However, if your business is just starting out or your expected business income is wildly different from what it was the prior year, you may need to make more careful calculations based on your quarterly income.
Here are the basic steps to follow if you want a precise measure of your quarterly tax due:
Calculate your total expected income.
Apply tax deductions to get your adjusted gross income (AGI).
Multiply your AGI by the relevant tax rate to find your estimated income tax owed.
Use that total expected income to also estimate the self-employment taxes you’ll owe for Social Security and Medicare.
Add together your estimated income tax owed and your estimated self-employment taxes. That’s your estimated tax for the year.
Take your estimated tax for the year and divide it by four (for the four quarters of the year)—that’s your quarterly tax amount!
Individuals can use the IRS Form 1040-ES worksheet to figure out their estimated quarterly tax payments. Corporations no longer rely on IRS Form 1120-W, Estimated Tax for Corporations, to calculate their quarterly taxes. That form has been retired, and Publication 542—and its included worksheet, which is nearly identical to the retired form—can be used to determine the required installments.
What are the estimated quarterly tax deadlines?
These are the estimated quarterly tax due dates, which typically don’t change from year to year. (Note: When the due date falls on a holiday or weekend, payment needs to be received by the next business day.)
Payment period | Due date |
January 1 – March 31 | April 15 |
April 1 – May 31 | June 15 |
June 1 – August 31 | September 15 |
September 1 – December 31 | January 15 (of the following year) |
Corporations will pay their estimated quarterly taxes on the 15th day of the 4th, 6th, 9th, and 12th months of their fiscal year. That means that if a corporation follows the calendar year, its due dates will be the same as those of individual taxpayers, except for the fourth quarter:
April 15
June 15
September 15
December 15
If a corporation’s fiscal year ends June 30th, for example, then the due dates for the installment payments are:
October 15
December 15
March 15
June 15
Can I file for an extension for quarterly taxes?
In rare cases when the Internal Revenue Service (IRS) does allow extensions, these generally apply only to the paperwork. An extension will give you more time to file your tax return, but it will not change the due date for your actual tax payment. Because your quarterly tax deadlines do not necessarily require paperwork, there is no regular extension available.
However, don’t hesitate to file for an extension if you need more time to complete your tax return. The regular tax return filing deadline is April 15, but you can easily file an extension to extend your due date by six months to October 15. Those filing individual tax returns will use Form 4868 to file an extension, whereas businesses or corporations use Form 7004 for extensions.
Keep in mind that the IRS may rarely offer broad extensions on quarterly tax payments because of extenuating circumstances (like a pandemic), but these situations are very uncommon.
What happens if I miss a quarterly estimated tax payment?
If you realize you’ve missed a quarterly estimated tax payment, make plans to pay it as soon as possible. You might end up being fined for your late payment, so the safest thing to do is to make the payment as soon as you remember.
Some might assume they can pay multiple quarters at once or even wait until the end to pay it all. However, any payments made later than the quarter they correspond to may be subject to a fine.
Can I skip an estimated tax payment?
The IRS requires regular tax payments throughout the year. Skipping an estimated tax payment is only a good idea if you’ve already paid enough in estimated taxes with your previous payments.
If you will owe less than $1,000 at the end of the year, or you’ve already paid nearly all of what you owed in the previous year, you might be able to avoid making estimated tax payments.
What is the estimated tax penalty for not paying on time?
The IRS applies a financial penalty for underpayment of estimated tax. That penalty interest rate changes quarter to quarter and year to year. See this page to stay up to date. The interest is added to what you owe when you file a federal tax return. The less of your tax bill that you pay in advance, the greater the fine.
How can I make quarterly tax payments easier?
Quarterly tax payments don’t have to be stressful. If you put in the time at the beginning of the year to calculate your expected tax due on taxable income, and then keep to your quarterly payments schedule, you won’t have a problem. Set up your electronic federal tax payment system (EFTPS) account for automatic withdrawals.
Working with an accountant or tax professional provides access to small business tax advice for your specific concerns, and can help you develop a safe, reliable estimate of what you need to pay to avoid penalties. As long as you’re able to stay organized and keep up with your bookkeeping, whether you use a tax preparer or do it yourself, you should be able to manage your quarterly payments. The process will also make it simpler when gathering your year-end documents to prepare your income tax return.
FAQs
How do I calculate my quarterly estimated tax payments?
Start by calculating your adjusted gross income (AGI) and multiplying it by your tax rate. The result is the income tax you’ll owe for the year. You’ll also need to calculate your self-employment taxes, which go toward Social Security and Medicare.
Add those amounts together to find your total estimated tax owed for the year. Divide the number by four, and that’s how much you’ll pay each quarter.
How do I file and pay quarterly taxes?
You have a few options for paying your quarterly taxes, including:
Mail: Prepare Form 1040-ES, write a check for your estimated tax payment, and mail both to the relevant address.
Online: Pay your estimated taxes online through the IRS Payments Portal.
Mobile app: It’s also possible to pay your small business quarterly taxes through the IRS2Go app.
Phone: Businesses can pay their estimated taxes by phone using a debit card, a credit card, or a digital wallet.
You’ll need to file Form 1040-ES only if you’re paying the tax by mail. Otherwise, paying online, via mobile app, or by phone does not require filing the form.
What happens if I miss a quarterly estimated tax payment or pay late?
If you miss a quarterly estimated tax payment or pay late, the IRS may charge you an underpayment penalty, which also accrues interest. You’ll pay the penalty and interest when filing your annual return.
You might be able to avoid penalties if you use the “safe harbor rule” for your payments. As long as your total payments for the full year meet one of these thresholds, the IRS generally won’t assess an underpayment penalty:
You pay 90% of your current year’s tax liability, or
You pay 100% of your previous year’s tax, or
You owe less than $1,000 in tax after subtracting withholdings and credits.
One quarterly payment should equal 25% of the safe harbor amount.
How do quarterly taxes work for businesses with irregular or seasonal income?
In these cases, you can use the annualized income method to adjust each quarterly estimated tax payment based on what you actually earn.
You’d generally pay more in high-revenue quarters and less (or nothing) in slower ones. This approach can help you avoid overpaying or getting hit with penalties later. Use the worksheet in IRS Form 1040-ES or Publication 542 to calculate your quarterly payments.
Do LLCs, S-corps, or partnerships handle quarterly taxes differently?
Yes, there’s a small difference. With sole proprietors, single-member LLCs, and partnerships, each owner or partner would pay estimated taxes on their share of profits each quarter. With S corporations, owners typically cover part of their tax obligation through payroll withholding. They would then pay quarterly estimated taxes on any shareholder distributions.
How should small businesses budget or set aside money for quarterly tax payments?
Quarterly taxes are easier to manage when you treat them like a regular bill instead of a surprise. A good rule of thumb is to set aside 25% to 30% of profit each time you get paid, and move it into a separate savings account labeled “taxes.” That way, your tax money will be ready when deadlines roll around. If your income fluctuates, adjust that percentage up or down as revenue changes, or base it on last year’s tax bill to stay within the IRS safe harbor rules. Automating transfers weekly or monthly can also help smooth cash flow and keep you from scrambling every quarter.
