Quarterly Estimated Taxes, Explained: Who Owes Them and How Much to Set Aside
If nobody is withholding tax from what you get paid, the IRS still expects its money four times a year, not once. Here's who owes it, the math behind how much, and how to avoid a penalty.
By Antoine Joseph · Taxes for Small Business · 8 min read
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When you're a W-2 employee, your employer withholds income tax from every paycheck and sends it to the IRS on your behalf. When you're self-employed — a freelancer, a contractor, a small business owner paying yourself owner's draws — nobody's doing that for you. The IRS still expects to be paid throughout the year, not just once at filing time, which is why quarterly estimated taxes exist.
Who actually owes them
As a general rule, you likely owe quarterly estimated taxes if you expect to owe at least $1,000 in tax for the year and don't have enough withheld from other income to cover it. That typically includes self-employed people, freelancers and independent contractors, and small business owners who don't run payroll for themselves.
The two taxes bundled into each payment
- 1Income tax — the same federal (and often state) income tax anyone pays, calculated on your net self-employment income after deductions.
- 2Self-employment tax — this is the self-employed version of FICA, covering Social Security and Medicare. Since there's no employer to split it with, you pay both halves: 12.4% for Social Security (on net self-employment earnings up to the $184,500 wage base for 2026) plus 2.9% for Medicare, for a combined 15.3%, calculated on 92.35% of your net self-employment earnings.
The 2026 due dates
Payments are calculated using Form 1040-ES, which walks through expected annual income, deductions, and credits to arrive at a total, then splits it into four installments.
The safe harbor rule: how to avoid a penalty
The IRS charges an underpayment penalty if you don't pay enough throughout the year, but there are two ways to guarantee you avoid it, regardless of what you actually end up owing:
- Pay at least 90% of this year's total tax (income tax plus self-employment tax) across your four payments, or
- Pay 100% of last year's total tax liability across this year's four payments — 110% if last year's adjusted gross income was over $150,000 (or $75,000 if married filing separately)
The prior-year method is often easier to plan around, since it's based on a number you already know (last year's actual tax bill) rather than a forecast of this year's income.
The mechanic that actually makes this manageable
Rather than scrambling to calculate a precise number four times a year, set aside a fixed percentage of every payment you receive — a common starting point is 25–30% for combined federal income and self-employment tax, adjusted based on your actual bracket and state taxes. Move that percentage into a separate account the moment you're paid, so the quarterly payment is just a transfer, not a scramble.
Where this connects to the rest of your books
If you're paying contractors rather than employees, they’re the ones responsible for their own quarterly estimated taxes — see 1099 vs. W-2 for how to tell which one applies. And this article covers the mechanics, not your specific filing — the Tax Season Document Checklist covers what to gather when it’s time to actually file.
Sources
- IRS, Estimated Taxes (Form 1040-ES) — official worksheet and instructions for calculating quarterly payments
- IRS, Self-Employed Individuals Tax Center — official self-employment tax rules and due dates
- Social Security Administration, 2026 COLA Fact Sheet — the 2026 Social Security wage base used in the self-employment tax calculation
Frequently Asked Questions
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