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Estimated taxes: how to calculate your quarterly payment

By Joa García
Tax Concepts

Most advice on estimated taxes stops at "set aside 25% to 30%." That's a reasonable rule of thumb for a rough monthly budget, but it's not how the IRS calculates what you owe, and it's not precise enough to tell you what to send in each quarter. Here's the real math, worked through with real numbers.

Who has to pay

If you expect to owe $1,000 or more in tax for the year, after subtracting any withholding and credits, the IRS expects you to pay that tax as you earn it, in four installments, rather than in one lump sum the following April. This applies to self-employed people, freelancers, and business owners whose income isn't covered by employer withholding, along with anyone else whose withholding falls short, like someone with significant investment income on the side.

The safe harbor: what you owe to avoid a penalty

Before calculating your actual tax, it helps to know the minimum that keeps you penalty-free, which isn't always the same number. You avoid an underpayment penalty if your total payments for the year equal the lesser of:

  • 90% of this year's total tax, or
  • 100% of last year's total tax (110% if your prior year adjusted gross income was over $150,000, or $75,000 if married filing separately).

If your income is roughly steady year to year, the prior-year option is often the simpler target, because it's a known number instead of a projection. If your income jumped significantly this year, calculating the current-year number is worth the extra work, since 100% or 110% of a much smaller prior-year tax bill could leave you underpaid.

The actual calculation, step by step

Here's the process using a single filer with $80,000 in net self-employment profit for the year, no other income, taking the standard deduction. Your own numbers will differ, but the steps are the same.

Self Employment Tax Example Calculation

Self-employment tax is calculated on 92.35% of your net profit, not the full amount, and half of what you owe becomes a deduction against your income tax. The Qualified Business Income deduction, generally 20% of your net business income for most self-employed people under the 2026 phase-in threshold of $201,775, reduces your taxable income further. Both of these matter, and both get skipped in the "just set aside 30%" version of this math, usually leading owners to over-save.

2026 due dates

2026 Estimated Tax Due Dates

You can skip the January payment if you file your full return and pay the balance due by February 1, 2027.

What if your income isn't steady

The example above assumes even income throughout the year, which works for a straightforward calculation but doesn't fit every business. If you're seasonal, or your income is heavily back-loaded into a few big months, splitting your estimate into four equal payments can leave you either overpaying early or underpaying late. The IRS allows an annualized income installment method that lets you calculate each quarter's payment based on income earned to that point, rather than a flat quarter of your annual estimate. It takes more calculation, but it can meaningfully reduce what you owe in slower quarters.

What happens if you don't pay enough

Underpaying triggers a penalty, calculated as interest on the shortfall for each period it went unpaid, not a flat fine. It's a real cost, but not a catastrophic one, and it's fully avoidable by hitting either safe harbor number. If you realize partway through the year that you're behind, catching up in the next quarter's payment reduces the penalty, since it's calculated period by period rather than as one number at year end.

Want to run your own numbers?

The Quarterly Estimated Tax Worksheet in the Prism resource library walks through this exact calculation with blank fields for your own figures, plus the 2026 due dates and safe harbor rules for reference.

Want help getting your quarterly number right?

A Vibe Check is a free, no-pressure conversation where we can run your actual numbers and tell you exactly what to send in each quarter. Schedule yours here.

Keep reading

This post is general information, not advice for your specific situation. The example above assumes a single filer with no other income, deductions, or credits. Your actual quarterly number depends on your full financial picture. Talk to a tax professional before setting your payment amount.