You generally must make estimated tax payments if you expect to owe at least $1,000 in tax for the year after subtracting withholding and credits, and you expect your withholding and credits to be less than the smaller of 90% of your current-year tax or 100% of the tax shown on your prior-year return. This covers sole proprietors, partners, S-corp shareholders who receive pass-through income, and contractors with no withholding.
For owners of an S-corp, the salary portion of your pay has withholding, but the K-1 distribution portion does not — so estimated payments usually cover the distribution's tax. For an LLC taxed as a sole proprietorship, the entire net profit flows to your personal return with no withholding at all.
Estimated payments for individuals follow a calendar that does not line up evenly with the quarters: April 15, June 15, September 15, and January 15 of the following year. For corporations (Form 1120-W), the installments fall on the 15th day of the 4th, 6th, 9th, and 12th months of the tax year.
When a deadline lands on a weekend or holiday, it shifts to the next business day. Extensions to file are not extensions to pay — unpaid balances accrue interest and the failure-to-pay penalty from the original due date.
- Q1 — April 15 (income from Jan 1 – Mar 31)
- Q2 — June 15 (income from Apr 1 – May 31)
- Q3 — September 15 (income from Jun 1 – Aug 31)
- Q4 — January 15 (income from Sep 1 – Dec 31)
There are two sound approaches. The annualized method divides your projected annual tax into four equal payments — simple, but it ignores the timing of when income actually arrives and routinely overstates early-quarter payments for seasonal businesses. The annualized income installment method (Form 2210) calculates each payment against the income actually earned in that period, which is more accurate but more work.
A rolling projection keeps each payment honest: estimate full-year tax, subtract what you've already paid in, and pay the remainder of the current quarter's true share. Businesses with lumpy revenue should annualize so they don't drain cash in slow quarters paying for income they haven't earned yet.
The safe-harbor protects you from the underpayment penalty if you pay in at least the smaller of (a) 90% of the current year's tax liability, or (b) 100% of the tax shown on your prior-year return (110% if your adjusted gross income was over $150,000). Most growing businesses should plan against the current year rather than the prior year, because last year's tax often understates this year's liability.
If you meet safe-harbor, you owe no penalty even if you end up owing a large balance at filing — but you still owe the balance itself. Safe-harbor is a shield against the penalty, not the tax.
The IRS calculates the underpayment penalty on Form 2210 using the federal short-term rate plus 3 percentage points, applied to each underpaid quarter separately. Because it's calculated quarterly, paying late in one quarter and early in the next does not net out — each quarter stands on its own.
The cleanest avoidance is a rhythm: quarterly projections against real books, payments sized to the safe-harbor or to current-year liability, and a year-end true-up in November so the January payment is already calibrated. This is the discipline AA runs for clients month over month.
