What Are Quarterly Estimated Tax Payments? A Simple Guide for Small Business Owners

Don’t Let Quarterly Taxes Catch You Off Guard

If you're self-employed, a freelancer, or run a small business, you’ve probably heard the term “estimated tax payments”. But what are they and do they apply to you?

Unlike employees, who have taxes withheld from each paycheck, business owners must proactively pay taxes throughout the year. That’s where quarterly estimated tax payments come in.

Here’s a clear breakdown of what they are, who needs to pay them, how to calculate them, and when they’re due.

Who Needs to Pay Estimated Taxes?

According to the IRS, you must make estimated tax payments if you expect to owe $1,000 or more in taxes when you file your return.

This applies to:

·        Sole proprietors

·        Partners in partnerships

·        S corporation shareholders

·        Freelancers, consultants, and independent contractors

·        Gig economy workers

·        Landlords or investors

💡 Important: Even if you have a regular job, if you earn side income (e.g., through rideshare, online sales, or rental property), you may need to make estimated payments.

What Do Estimated Payments Cover?

Estimated taxes include:

- Federal income tax

- Self-employment tax (Social Security + Medicare, typically 15.3%)

- Alternative Minimum Tax (AMT) (if applicable)

- Additional taxes on investment income or other sources

They do not cover payroll taxes you withhold as an employer—that’s handled separately through payroll filings.

When Are Estimated Payments Due?

Estimated taxes are due four times a year, and the deadlines do not fall at equal intervals.

Quarter    Income Period  Payment Due Date

Q1          Jan 1 – Mar 31  April 15

Q2         Apr 1 – May 31  June 15

Q3          June 1 – Aug 31       September 15

Q4          Sept 1 – Dec 31  January 15 (next year)

📌 If the due date falls on a weekend or holiday, the deadline is moved to the next business day.

How Do You Calculate Estimated Payments?

There are two main methods:

1.      1. Safe Harbor Method

You can avoid underpayment penalties if you pay the lesser of:- 90% of your current year’s tax liability, OR- 100% of your prior year’s tax (110% if your prior year’s AGI was over $150,000)This is the simplest and most commonly used way to avoid IRS penalties

2.      2. Actual Income Method

If your income varies dramatically throughout the year, you can calculate your actual income and expenses each quarter to determine your estimated tax. This requires detailed bookkeeping and quarterly projections. We don’t generally recommend you try this on your own as it is highly sensitive to the accuracy of your books and records and the little thing you may have forgotten can come back to bite you in the form of tax, interest, and penalties.

How to Make Estimated Tax Payments

You can pay:

- Online through the IRS Direct Pay system

- Using the Electronic Federal Tax Payment System (EFTPS)

- Through your tax software or CPA

Historically you could also pay by mail with Form 1040-ES, however, this option is expected to end in September 2025 in an effort to modernize the IRS and lower their operating costs.

💡 Always keep a copy of your payment confirmations or bank transactions as proof.

What Happens If You Don’t Pay?

Failing to make estimated payments can result in:

- IRS underpayment penalties

- Interest charges

- A surprise tax bill at year-end

The penalty is calculated based on how much you underpaid and for how long, so even partial payments can help minimize penalties.

Stay Ahead of Your Tax Obligations

Quarterly estimated tax payments are one of the most overlooked responsibilities for business owners and self-employed individuals. But staying on top of them protects your cash flow and prevents unpleasant surprises at tax time.

At Clarity Advanced Accounting, we help clients calculate, schedule, and stay compliant with estimated tax payments—so you can focus on running your business with confidence.

📞 Contact us today to get a personalized tax plan and avoid costly penalties.