If taxes are withheld from a paycheck, the system runs itself. The moment you own a business, collect rent, or earn investment income, the system flips: the IRS expects you to pay as you go — four times a year, on dates that don't care how busy you are.
The calendar
Estimated payments for a calendar-year filer are due April 15, June 15, September 15, and January 15 of the following year. Note the rhythm — it isn't quarterly. The second "quarter" is only two months long, which is exactly where first-year business owners get caught short.
How much is enough
You avoid underpayment penalties by paying the smaller of 90% of this year's tax or 100% of last year's (110% if your adjusted gross income topped $150,000). That second option — the "safe harbor" — is why your CPA wants last year's return finished early: it locks in a penalty-proof number even if this year takes off.
What missing a date actually costs
The underpayment penalty works like interest, computed from each missed installment date until the balance is paid. At recent rates it has run roughly 7–8% annually — an expensive, non-deductible loan you never agreed to take. And because it accrues per installment, catching up in January doesn't erase what accrued since June.
The state layer
Most states with an income tax run parallel estimate calendars, and pass-through entity tax (PTET) elections add entity-level payment deadlines of their own — several states require the election itself by mid-year. If you operate in more than one state, the calendar multiplies.
Making the calendar boring
The fix is unglamorous: current books, a quarterly projection, and payments sized to the projection instead of a guess. That's the core loop of our tax planning service — clients see each date coming a month out, with the amount already calculated and the cash already planned.
How the safe harbors actually work
You avoid underpayment penalties by meeting one of two tests: paying at least 90% of the current year’s tax, or 100% of last year’s tax — 110% if your prior-year adjusted gross income exceeded the higher-income threshold. The prior-year test is the practical one for most owners, because it is knowable in advance.
A crucial nuance: the penalty is calculated quarter by quarter, not annually. Paying nothing for three quarters and catching up in January still generates penalties for the earlier periods. The IRS underpayment rate has been high enough recently that this is no longer a rounding error.
When income is lumpy, use the annualized method
If your income arrives unevenly — a business sale, a bonus, a strong fourth quarter, seasonal revenue — the annualized income installment method lets you pay based on income actually earned in each period rather than in even quarters. It requires more computation and Form 2210 Schedule AI, but for construction, agriculture, entertainment, and anyone with a late-year event, it prevents both penalties and needlessly early payments.
Withholding is a lever most owners forget
If you or your spouse have W-2 income, increasing withholding is treated as paid evenly across the year regardless of when it actually happens. That makes a December withholding adjustment a legitimate way to fix an underpayment that a December estimated payment cannot cure. It is the single most useful trick in this area.
State estimates and the elections that ride along
States have their own schedules, and several diverge from the federal calendar. California front-loads its installments unevenly, which surprises new residents constantly. Oregon and Georgia each have their own requirements, and the pass-through entity elections in all three states carry their own prepayment deadlines — California’s June PTE prepayment being the one that can void an election entirely if missed.
We keep these on a client calendar rather than leaving them to memory. The rolling deadline calendar on our tax page tracks the main federal dates automatically.
Questions about estimated payments
What if I underpaid earlier in the year?
Pay as soon as you can to stop the penalty from accruing further, and if you have wage income, consider increasing withholding — withholding counts as paid evenly across the year, which can cure earlier quarters in a way an estimated payment cannot.
Do I need to pay estimates in my first year of business?
Often yes, once you expect to owe more than a nominal amount. There is a narrow exception for a first tax year with no prior liability, so the answer depends on your specific situation — worth a five-minute conversation rather than a guess.
Is it better to overpay and get a refund?
Generally no. A large refund is an interest-free loan to the government. The goal is landing inside the safe harbor with the money working in your business until it is due.