Tax planning
How to Pay Quarterly Taxes as a Small Business Owner
What estimated taxes are, when the four due dates fall, how to calculate the right amount, and how to avoid the underpayment penalty. With S-corp rules and California deadlines.
Written by Matt Reese, CPA · 6 min read · Published April 2026·Share on LinkedIn
Key Takeaways
- Quarterly estimated taxes are due April 15, June 15, September 15, and January 15 — not on the last day of each quarter.
- The safe harbor rule: pay either 100% of last year's tax or 90% of this year's tax to avoid underpayment penalties.
- S-corp owners pay estimated taxes on pass-through income (K-1) separately from W-2 withholding — you can't use one to cover the other.
- Underpayment penalties are charged per quarter, not at filing — catching up in Q4 doesn't fix a missed Q1.
What quarterly taxes actually are
Quarterly estimated taxes are advance payments toward the income tax and self-employment tax (or payroll tax for S-corp owners) you expect to owe for the year. They’re not a separate tax — they’re just the mechanism the IRS uses to collect tax from people who don’t have an employer withholding from a paycheck.
W-2 employees have taxes withheld automatically from every check. Self-employed owners and S-corp owners with pass-through income don’t. The IRS requires you to pay in throughout the year rather than writing one check on April 15.
The four due dates (and why they’re confusing)
The quarterly payment schedule doesn’t align with actual calendar quarters, which trips up a lot of first-year business owners:
| Payment | Covers income through | Federal due date | California due date |
|---|---|---|---|
| Q1 | January 1 – March 31 | April 15 | April 15 |
| Q2 | April 1 – May 31 | June 15 | June 15 |
| Q3 | June 1 – August 31 | September 15 | September 15 |
| Q4 | September 1 – December 31 | January 15 (following year) | January 15 (following year) |
Note that Q2 covers only two months (April–May), while Q3 covers three (June–August). This is a quirk of the original IRS schedule and it hasn’t changed. When due dates fall on weekends or federal holidays, the deadline shifts to the next business day.
California is different for new S-corps
How to calculate the right amount
There are two methods for calculating how much to pay each quarter. You only need to satisfy one:
- 90% of current-year tax — pay 90% of what you’ll actually owe for the current year, spread across the four quarters.
- 100% of prior-year tax — pay the same total amount you owed last year (110% if your prior-year adjusted gross income exceeded $150,000).
If you meet either threshold, you avoid the underpayment penalty — even if you owe more at filing. This is the safe harbor.
The safe harbor doesn’t mean you pay nothing in April. It means you won’t be charged an underpayment penalty for the difference.
The prior-year method: simple but imperfect
The easiest approach for most owners: look at the total tax on last year’s return (Form 1040, line 24) and divide by four. Pay that amount each quarter and you’re in safe harbor territory — you won’t owe an underpayment penalty even if you have a much better year.
The downside: if your income jumps significantly, you’ll still owe a large payment in April. You avoid the penalty, but not the bill.
The current-year method: more accurate, requires work
The current-year method requires estimating your actual taxable income for the year and calculating your expected tax. For a sole prop:
- Estimate full-year business profit (based on current-year bookkeeping).
- Subtract the SE tax deduction (half of SE tax is deductible).
- Add any other income: spouse W-2, interest, dividends, rental.
- Subtract deductions: standard or itemized, QBI deduction, retirement contributions.
- Apply federal and California tax brackets to get projected tax.
- Divide by four and pay that amount each quarter (or adjust each quarter as income changes).
This is a rough estimate — actual figures depend on your full income picture, deductions, filing status, and California income. A CPA runs this calculation precisely, not approximately.
Run the numbers for your situation
Estimate your federal and California quarterly payments based on your actual income.
S-corp owners: W-2 withholding and K-1 income are separate
If you pay yourself a W-2 salary through your S-corp, that salary has payroll taxes withheld. But your K-1 pass-through income — the distributions and owner’s share of profit — has no withholding. You need to make estimated tax payments on the K-1 income separately.
Many S-corp owners mistakenly believe their W-2 withholding covers their full tax obligation. It only covers the income tax and payroll tax on the W-2 wages. The K-1 income creates additional federal income tax (not SE tax, but regular income tax at your marginal rate) that requires estimated payments.
Increase your own W-2 withholding to simplify
Where to actually make the payments
- Federal: IRS Direct Pay (irs.gov/payments) — free, no account required. Or use EFTPS (Electronic Federal Tax Payment System) if you prefer to schedule payments in advance.
- California: FTB Web Pay (ftb.ca.gov) — free, same-day processing. You can also use the FTB’s online portal to schedule future payments.
Keep a record of every payment — date, amount, and confirmation number. You’ll need these when preparing your return.
The underpayment penalty: what it actually costs
The underpayment penalty is calculated per quarter based on how much you underpaid relative to what was due for that period. As of 2025, the federal rate is the federal short-term rate plus 3 percentage points (currently around 8% annualized). California charges a similar rate.
The penalty on a $10,000 underpayment for one quarter is roughly $200. It’s not catastrophic, but it compounds if you consistently underpay, and it’s assessed automatically at filing without a separate notice.
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Frequently asked
Questions owners actually ask
- Do all business owners have to pay quarterly taxes?
- You're required to make estimated payments if you expect to owe at least $1,000 in federal tax for the year after withholding and credits. Most profitable self-employed owners and S-corp owners with pass-through income will hit this threshold. If you also have a W-2 job with heavy withholding, that withholding may cover the obligation.
- Are quarterly taxes based on revenue or profit?
- Profit — taxable income after deductible expenses. A sole prop at $200k revenue with $80k in deductible expenses calculates estimated taxes on roughly $120k of profit (less the SE tax deduction), not the full $200k. This is why current bookkeeping matters: you can't estimate accurately if you don't know your actual profit.
- What happens if I miss a quarterly tax payment?
- The IRS charges an underpayment penalty for each quarter you underpaid — currently around 8% annualized (varies with the federal short-term rate). This is charged per quarter and assessed at filing. It's not enormous, but it's also not a one-time thing if you habitually underpay. California has a similar penalty charged by the FTB.
- Can I pay more in Q4 to make up for smaller Q1–Q3 payments?
- You can't retroactively fix prior quarters — the penalty for each quarter is calculated on what was due for that period. But you can reduce a Q4 shortfall by increasing your Q4 estimated payment or adjusting W-2 withholding before year-end. If you're an employee with a W-2, increasing withholding in November or December is an easy way to catch up.
- Does California have different quarterly tax rules than the IRS?
- California uses four due dates that match the federal schedule for individuals (April 15, June 15, September 15, January 15). For S-corps and partnerships filing entity-level, the FTB has its own installment schedule. The California underpayment penalty rate is different from federal, and the FTB's safe harbor calculation works slightly differently at higher income levels. Your CPA should be calculating both.
- I had a great Q3. Do I need to send in a large payment all at once?
- You can. The September 15 quarterly payment is based on your income through August 31, so a strong Q3 should be reflected there. If you didn't pay enough in Q1 or Q2, Q3 is too late to fix those — but it's not too late to avoid underpayment in Q3 and Q4. Running a mid-year tax projection with your CPA in July or August tells you exactly where you stand.
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Educational content only.This article is for informational purposes and does not constitute tax, legal, or investment advice. Every owner’s facts are different; consult a qualified CPA and advisor before acting. Tax and accounting services are provided through Matt Reese, CPA; investment advisory services are provided through Measured Risk Portfolios, a registered investment adviser. Matt Reese, CPA and Measured Risk Portfolios are separate entities; clients are not required to engage both.