Nobody withholds taxes from a business owner's income — so the IRS expects you to send it in yourself, four times a year. Miss the rhythm and you'll owe a penalty on top of the tax. Here's the whole system in one read.
Who has to pay
In general: anyone who expects to owe $1,000 or more in federal tax for the year beyond what withholding covers. That includes freelancers, sole proprietors, partners, S-corp owners (on income beyond their salary), and landlords with meaningful rental profit. If you also have a W-2 job, extra withholding there can substitute for estimated payments.
When it's due
The "quarters" are famously uneven:
Most states with income tax run their own estimated payments on roughly the same calendar — Virginia does. Don't forget the state side.
The safe harbor: your insurance policy
You avoid underpayment penalties if your four payments add up to either:
- 90% of what you'll actually owe this year — accurate but requires a crystal ball, or
- 100% of last year's total tax (110% if your adjusted gross income was over $150,000) — completely predictable.
The second option is the one to remember. Take last year's total tax from your return, divide by four, and pay that on schedule. Even if this year turns out far better, you'll owe the difference in April without penalty. For a growing business, that's the calm path.
How to actually do it
- Pick your number. Prior-year safe harbor for predictability, or a current-year estimate from your books if income has dropped and you don't want to overpay.
- Set aside as you earn. Move a fixed percentage of every deposit — 25–30% is a common starting range — into a separate tax savings account. The quarterly payment becomes a transfer, not a scramble.
- Pay online. IRS Direct Pay or an EFTPS account for federal; your state's tax portal for state. Save the confirmations — your preparer needs the dates and amounts.
- Recheck at mid-year. One good look at your P&L in June tells you whether the remaining payments need adjusting.
The penalty for underpaying is essentially interest — currently in the ballpark of 7–8% annualized, not a fine that ruins you. Don't let a missed quarter spiral into avoidance. Pay the next one on time and catch up; the meter only runs on the shortfall.
This guide is general information for small business owners — not tax, legal, or accounting advice for your specific situation. Talk to your CPA, or to us, before acting on it.
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