Standard disclaimer: I am a CPA, but not your CPA (and if I am, talk to me about this post if it interests you!). This post is general information, not advice for your situation.
Last Reviewed: October 2026
One of the most common challenges that business owners and freelancers face when planning for their taxes is paying estimated taxes. Why do I have to pay estimates? What if I don't do it or it's already too late? How much do I pay?
What are estimates? Why do I have to pay them?
When you have a W-2 job, your employer keeps some of the money they owe you and sends it straight to the IRS (or your state) instead of you. Why? Because the IRS tells them to do it.
This process of taking out money from a W-2 employee's paycheck before it ever gets to you is called withholdings. We can think of quarterly estimates as a similar process for freelancers and self-employed people.
When you decide to become a business owner or self-employed, the IRS can't make your employer withhold your income taxes anymore because there isn't an employer (S-Corp? set aside the W-2 for now, you still have pass-through income). The IRS isn't so cruel they'll make you withhold every time you take money out, but they still want their money throughout the year, on a quarterly basis.
Quarterly estimates is how they make that happen. Estimates cover the taxes you owe personally including income and self-employment taxes.
Do I have to make the payments? Why should I?
The short answer to "why should I pay quarterly estimates" is "penalties and interest". Failure to pay estimated income taxes comes with a penalty based on how much you should have paid based on last year or this year's tax and what you actually paid. It's like paying interest on what you owe — interest that you can avoid by paying the estimates throughout the year.
At the end of the year, my experience with clients that don't make their estimates is that they are surprised by what they owe — especially so when they are hit with self-employment tax for the first time. If they can't pay the full bill when it comes due, they end up owing penalties and interest on their balance at the end of the year while they pay through a payment plan. It's not the end of the world, but it's a cost you don't have to pay if you plan ahead.
If you owe less than $1,000 after withholdings and tax credits when filing, you generally won't owe any penalties related to underpayment of estimated tax.
If you should be paying estimates and you're not, you can start late. Any payments you make will help reduce the penalties you will owe on April 15th. A little can go a long way to saving you money.
So, how much do I pay? When do I pay it?
Most people I work with who need to pay estimates pay their safe harbor estimates. If your prior year AGI (adjusted gross income) was less than or equal to $150,000 ($75,000 if married filing separately) you pay the lesser of 100% of last year's total tax or 90% of the current year's total tax. If it's more than $150,000, you have to pay 110% of last year or 90% of this year, whatever is less. Any withholdings you or your spouse (if filing jointly) have count toward those estimates. You can find the table of when to make the payments here. It's not actually quarterly but it is pretty close - April 15th, June 15th, September 15th, and January 15th of the following year.
Is that the only way to do it? Certainly not! If you are taking money out of the business on a regular schedule, the IRS is happy to receive the money as often as you would like to send it. If it's easier to make an estimated tax payment based on a percentage of what you take out each month, you can do that. You're still obligated to hit the beats described above, but you have some flexibility to do what works for you. This can be tricky though, because that percentage you pick needs to be based on a calculation that gets you to the right place throughout the year - you're taxed on your income, not what comes out of your business to you. If your income is seasonal, there is a method the IRS has designed for you as well. Use Form 2210, Schedule AI, so you aren't held to the same quarterly basis as someone who earns steadily throughout the year.
You might be asking, what if I know the estimates are wrong? You are allowed to base your estimates on what you know your income to be during the year. That's the "90% of current year" tax part of the "lesser of" equation.
If you know you're going to beat last year's income, you might wonder if you need to pay more than the safe harbor. You don't. I usually recommend it to avoid the risk that you're short on liquid funds on April 15th and owe penalties and interest for failing to pay on time overall - but you won't owe an underpayment penalty for paying only the safe harbor amount.
I've left the states out of this post so far. The situation is simple in theory but finicky in practice. Every state that has an income tax also wants you to pay estimated taxes. They have their own safe harbor estimate rules that are similar, but can differ in important ways - how to calculate the safe harbor amount can change from state to state and even the payment schedule may change.
I know this can sound complicated, which is why an intro is always free. If you want to know more about paying estimates, book a free intro call, or read more about our accounting and tax services and advisory work.
This article provides general information and is not tax, legal, or accounting advice for your individual situation. Tax rules change and their application depends on the facts. Consult a qualified professional before acting on this information.
