Owners who draw income from a pass-through business — a sole proprietorship, partnership, LLC, or S corporation — generally have no employer withholding tax on that income, so the IRS requires quarterly estimated payments instead. The penalty for underpaying is effectively interest that accrues daily from each quarter's due date, per the IRS's own rules, and it is entirely avoidable with one number: your safe harbor. Orer News publishes information, not tax advice; a CPA should confirm your specific numbers.
For the 2026 tax year the quarterly due dates are April 15, June 15, and September 15 of 2026, and January 15 of 2027. Farmers and fishermen have special rules; everyone else pays on that calendar.
What is the safe harbor and why does it matter?
You avoid underpayment penalties by paying, across the year, the smaller of two amounts: 90 percent of the current year's tax, or 100 percent of the prior year's tax — 110 percent if your prior-year adjusted gross income exceeded $150,000. The prior-year route is the planning tool: if you paid $18,000 in tax last year, four timely payments of $4,950 (110 percent for higher earners) make you penalty-proof no matter how much this year's income jumps. Growth businesses should pay the safe harbor on schedule and bank the difference for April.
Do you owe self-employment tax on top?
Yes, and it is the number new owners most often miss. Net self-employment earnings above $400 carry self-employment tax — the Social Security and Medicare contributions employees split with employers — at 15.3 percent up to the wage base and 2.9 percent above it. The wage base was $176,100 for 2025, per the Social Security Administration. Half of the self-employment tax is deductible, but the full amount must be inside your estimate, which is why a rough income-tax-only estimate routinely under-withholds by thousands.
How do you compute the quarterly number?
The annualized method rewards accuracy: project the year's net profit, apply your effective federal rate plus 15.3 percent SE tax to the relevant brackets, divide by four. When income is lumpy, the annualized income installment method (Form 2210 Schedule AI) lets you size each payment to the income actually earned by that quarter rather than a flat annual estimate — more paperwork, but it matches cash going out to cash coming in. Software does this; the decision is whether to spend the effort.
What happens if you miss a quarter?
The penalty accrues per quarter from its due date, not from April, so catching up in December does not erase the interest on a missed June payment. If a quarter's income collapsed, the annualized method can legitimately shrink that quarter's required payment. And if you overpay, estimates roll forward as credits — overpayment is recoverable, but it is an interest-free loan to the Treasury, which is why hyper-accurate quarterly recalibration beats a January guess.
What about state estimates and S corporation salaries?
Most states with an income tax run their own quarterly calendar with their own safe harbors; California and New York in particular collect aggressively. S corporation owners who take a salary plus distributions should remember withholding applies to the salary while distributions still generate estimated-tax obligations on the pass-through profit — the structure changes the mechanics, not the underlying duty to pay as you go.
- Safe harbor: 90% of current-year tax or 100%/110% of prior year
- Include 15.3% self-employment tax in every estimate
- Due dates for 2026: April 15, June 15, September 15, January 15
- Lumpy income? Ask your preparer about Form 2210 Schedule AI
Treating estimates as a monthly operating expense — a standing transfer to a tax reserve account — converts the IRS's calendar from an annual scare into a line item you barely think about.
For more context, read LLC or Sole Proprietorship: The Tax Differences That Matter.
For more context, read The Real Cost of a First Hire, Itemized.
For more context, read How Many Months of Expenses Should a Business Hold in Cash?.