Quarterly Taxes: The Payments Nobody Warned You About

The email from your accountant arrives in early April. Your first year as a business owner. You knew you’d owe taxes. You were prepared for that.

You weren’t prepared for $23,000.

The money’s already spent. You have a payment plan conversation in your future. And you’re learning the hard way about something called “estimated quarterly taxes.”

This doesn’t have to happen.

Why Quarterly Taxes Exist

When you work a W-2 job, your employer withholds taxes from every paycheck. Money goes to the IRS before you ever see it. By year-end, you’ve been paying taxes all along.

When you’re self-employed, nobody withholds anything. You get paid. You keep it all. And if you don’t send the IRS their share throughout the year, they charge penalties when you finally pay up.

Quarterly estimated taxes are how self-employed people pay as they go.

Do You Need to Pay Quarterly?

You likely need to make estimated payments if you:

• Are self-employed (sole proprietor, single-member LLC, freelancer)
• Own a business that passes income to your personal return (partnership, S-Corp, multi-member LLC)
• Receive 1099 income as an independent contractor
• Have significant income not subject to withholding (investments, rental income)

The $1,000 Rule

The IRS requires estimated payments if you expect to owe $1,000 or more in taxes for the year, after subtracting withholding from any W-2 jobs and refundable credits.

If you’re making $60,000+ from self-employment, you almost certainly exceed this threshold.

2025-2026 Due Dates

Quarter	Income Period	Due Date
Q1	January 1 - March 31	April 15, 2025
Q2	April 1 - May 31	June 16, 2025
Q3	June 1 - August 31	September 15, 2025
Q4	September 1 - December 31	January 15, 2026

Notice something strange? Q2 covers only two months. Q3 covers three. This irregular schedule catches many taxpayers off guard. Mark these dates in your calendar.

If a due date falls on a weekend or holiday, the deadline shifts to the next business day.

How to Calculate Your Payments

Two main approaches:

Method 1: Current Year Estimate

Project your annual income, calculate expected tax liability, divide by four.

Example:

• Estimated annual net profit: $80,000
• Self-employment tax (15.3% on 92.35%): $11,289
• Federal income tax (approximate 15% effective rate): $12,000
• Total estimated liability: $23,289
• Quarterly payment: $5,822

This method works best when your income is predictable.

Method 2: Safe Harbor

Pay 100% of last year’s total tax liability, divided into four equal payments. This guarantees no underpayment penalty, regardless of what you earn this year.

Catch: If your prior year AGI exceeded $150,000 ($75,000 if married filing separately), you must pay 110% of last year’s tax for safe harbor.

Example:

• Last year’s total tax: $20,000
• Prior year AGI: $160,000 (above $150,000 threshold)
• Safe harbor amount: $20,000 x 110% = $22,000
• Quarterly payment: $5,500

Which to Use?

Use current year estimates if:

• This year’s income will be significantly lower than last year
• You want payments to closely match actual liability
• Income is predictable month to month

Use safe harbor if:

• Income fluctuates unpredictably
• You want certainty and simplicity
• This year will likely exceed last year

The Self-Employment Tax Reality

Self-employment tax hits harder than most new business owners expect.

When you’re employed, you pay 7.65% of wages for Social Security and Medicare. Your employer pays another 7.65%. Total: 15.3%.

When you’re self-employed, you’re both employer and employee. You pay both halves: 15.3%.

2025 rates:

• Social Security: 12.4% on net earnings up to $176,100
• Medicare: 2.9% on all net earnings
• Additional Medicare: 0.9% on earnings above $200,000 (single) or $250,000 (married filing jointly)

Important: You calculate SE tax on 92.35% of net self-employment earnings (accounting for the employer-equivalent portion).

Example:

• Net self-employment income: $100,000
• SE tax base: $100,000 x 92.35% = $92,350
• SE tax: $92,350 x 15.3% = $14,130

That’s $14,130 just in self-employment tax, before income tax.

How to Make Payments

IRS Direct Pay (Recommended)

Pay online at irs.gov/payments. Free, secure, immediate confirmation.

Select:

• Reason for Payment: Estimated Tax
• Apply Payment To: 1040ES
• Tax Period: The year you’re paying

EFTPS (Electronic Federal Tax Payment System)

Enroll at eftps.gov for scheduled payments. Takes 5-7 days to set up, but allows you to automate quarterly payments.

IRS2Go App

Mobile app that connects to Direct Pay. Pay from your phone.

Credit or Debit Card

Available through IRS-approved processors. Processing fees apply (1.85%-1.98% for credit, flat fee for debit). Only makes sense if you’re earning points worth more than the fee.

Underpayment Penalties

If you don’t pay enough throughout the year, the IRS charges a penalty. For 2025, the rate is approximately 8% (it changes with interest rates).

How to Avoid Penalties

You avoid the penalty if you meet any of these conditions:

1. You owe less than $1,000 after subtracting withholding and credits
2. You paid at least 90% of this year’s tax through withholding and estimates
3. You paid at least 100% of last year’s tax (110% if prior year AGI exceeded $150,000)

Safe harbor is the simplest protection. Pay what you paid last year (or 110%), and you’re covered regardless of what happens this year.

Texas Considerations

Good news: Texas has no state income tax. You don’t make quarterly payments to Texas.

However, if you:

• Have business nexus in other states with income tax
• Have employees in income tax states
• Earn income sourced in other states

You may need quarterly payments to those states. Each has its own rules.

Common Mistakes

Mistake 1: Waiting Until Year-End

Some business owners ignore quarterly taxes and pay everything in April. Result: penalties for every quarter you underpaid. The penalty accumulates all year.

Mistake 2: Forgetting Q4

The Q4 payment is due January 15 of the following year, before you file your return. Many taxpayers focus on tax preparation and miss this payment.

Mistake 3: Not Adjusting Mid-Year

If your income increases significantly, your earlier quarterly payments may be insufficient. Adjust remaining payments to catch up. Safe harbor protects you from penalty, but you’ll still owe the difference.

Mistake 4: Confusing Profit with Cash

You owe taxes on net profit, not on cash you deposited or withdrew. Accurate bookkeeping is essential to calculating correct estimates. Guessing leads to surprises.

The System That Works

Monthly: Set aside 25-35% of net profit in a dedicated savings account. Don’t touch it.

Quarterly: Transfer from savings to pay estimated taxes on schedule.

Annually: Work with your CPA to calculate next year’s estimates based on actual results.

This approach prevents the April shock. Money set aside as you earn it is money available when due.

Getting Help

Quarterly tax calculations get complex with:

• Multiple income sources
• State tax obligations
• Variable business income
• Prior year losses to carry forward
• S-Corp salary splits

At EZQ Group, we help Houston business owners project their tax obligations and make appropriate quarterly payments. Accurate bookkeeping throughout the year makes these calculations reliable instead of hopeful guesses.

Need help with your quarterly tax strategy? Contact us to discuss your situation.

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This article provides general information and is not tax advice. Tax situations vary, and you should consult with a qualified tax professional about your specific circumstances.