If you’re self-employed or your income isn’t fully withheld, the IRS expects to be paid as you earn — four times a year. Miss it and the penalty is quiet but real.
Employees rarely think about this because their employer withholds tax from every paycheck. The moment you have business income, investment income, or 1099 work, that job becomes yours — and the IRS charges interest if you fall behind.
The safe-harbor rule
You don’t have to predict your income perfectly. The tax code gives you a safe harbor: pay in enough during the year and no penalty applies, even if you owe more at filing. You’re generally safe if you pay the smaller of:
- 90% of what you’ll owe this year, or
- 100% of last year’s tax — 110% if your income was high.
That second option is the trick most people miss. Because last year’s number is already known, you can lock in protection from a penalty without forecasting a thing.
Estimates are due roughly April 15, June 15, September 15, and January 15. They’re uneven on purpose — put them in your calendar now so none slips by.
A simple system
For most business owners, we recommend treating taxes like a bill you pay yourself first. Move a fixed percentage of every deposit — often 25–30% — into a separate savings account, and pay the quarterly estimate from there. The money is never in your operating account long enough to feel spendable.
When income swings
If your income is lumpy — a big quarter followed by a quiet one — the “annualized” method lets you pay based on what you actually earned each period instead of in even quarters. It’s more paperwork, but it keeps cash in your business during the slow stretches.
Set the system up once and the penalties disappear. We handle the calculation for clients each quarter so the only thing you have to do is click pay.