Quarterly Estimated Taxes for Contractors: What to Pay
Did you get hit with a big tax bill last April?
You're not alone. When you work for yourself, nobody takes tax out of your pay. The IRS still wants its money during the year, not all at once in April.
That's what quarterly estimated taxes are for. Pay too little, and you owe a penalty. Pay too much, and you've tied up cash you needed for payroll, a new van, or a slow month.
Here's how to get the number right.
Why Contractors Pay Taxes Four Times a Year
An employee has tax taken out of every paycheck. A contractor doesn't. You get paid in full, and the tax is your job.
The IRS calls this the pay-as-you-go system. If you expect to owe $1,000 or more for the year, you're supposed to pay it in four installments.
Your payments cover two taxes:
Income tax. The same tax everyone pays.
Self-employment tax. This is Social Security and Medicare. An employee splits it with the boss. You pay both halves.
Self-employment tax is the one that surprises people. It works out to about 14% of your profit, before income tax even starts.
The 2026 Deadlines
For income you earn in 2026, the federal payments are due:
April 15, 2026
June 15, 2026
September 15, 2026
January 15, 2027
Notice the gaps aren't even. The second payment comes just two months after the first. The last one lands in January of the next year.
There's one shortcut on the last payment. If you file your 2026 return by February 1, 2027, and pay everything you owe with it, you can skip the January 15 payment.
The Safe Harbor: Pay This, and There's No Penalty
This is the most useful rule in this whole post.
You don't have to guess this year's tax perfectly. You avoid the penalty if your payments add up to the smaller of:
90% of this year's tax, or
100% of last year's tax
If your adjusted gross income last year was over $150,000 ($75,000 if married filing separately), the second number goes up to 110% of last year's tax.
Why does this matter for a contractor? Because last year's tax is a number you already know. It's printed on your 2025 return. This year's tax is a guess until December.
Here's how it works:
Electrician, total tax on his 2025 return: $18,000. His income last year was under $150,000. If he pays $4,500 by each of the four deadlines, he owes no penalty for 2026. That holds even if this year turns out to be his best year ever.
HVAC owner, total tax on her 2025 return: $30,000. Her income last year was over $150,000. She needs 110%, or $33,000. That's $8,250 per quarter.
If business is up, you'll still owe more when you file. But you won't owe a penalty on it. So plan to have that cash ready in April.
How Much to Set Aside From Every Job
The safe harbor tells you what to send the IRS. It doesn't tell you how much to hold back from each check. You need both.
Here's a simple way to find your own percentage:
Take the total tax from last year's return. Add your state tax, if you have one.
Divide it by last year's net profit.
That's your set-aside rate. Move that share of every deposit into a separate savings account.
For example, say your total tax last year was $24,000 on $100,000 of profit. Your rate is 24%. Every time a $5,000 job pays, $1,200 goes into the tax account. When a deadline comes, the money is already there.
Why not just use a rule of thumb like 25% or 30%? Because the right number depends on your profit, your deductions, your state, and whether you're an S-corp. Your own return already did that math for you.
One warning. If your profit jumps this year, your rate will run a little higher than last year's. Check it again at midyear.
What Happens If You Pay Late or Too Little
The penalty isn't a flat fine. It works like interest.
The IRS figures it separately for each quarter, from the day the payment was due until the day you paid it. The rate is set every quarter. For the last three months of 2026, it's 7% a year.
Two things follow from that:
A big payment in January doesn't erase an April shortfall. The penalty on the April payment has already been running for nine months.
Paying late still beats not paying. The meter stops the day the money arrives.
If you missed a payment, don't wait for the next deadline. Pay what you owe now.
If Your Income Is Uneven
Most trades businesses don't earn the same amount every month. Landscapers are slow in winter. HVAC peaks in summer and in a cold snap.
If your income comes in late in the year, look at the annualized income method. The IRS normally assumes you earn evenly all year. This method lets you match your payments to when you actually earned the money. It's figured on Form 2210 when you file, and it can cut or erase a penalty for a business with a back-loaded year.
California Runs on a Different Schedule
If you're in California, you also owe state estimated tax. The rules look similar, but the timing is different.
California wants its payments in uneven chunks:
April 15: 30% of your yearly estimate
June 15: 40%
September 15: nothing
January 15: 30%
That's 70% by mid-June. Contractors who copy the federal schedule end up behind on the state side every summer.
California uses the same safe harbor idea, with the same 110% rule above $150,000 of income. One difference: if your income is $1 million or more, the state requires you to base payments on this year's tax, not last year's.
The Rule Behind Every Estimated Payment
Your estimated taxes are only as good as your books.
If you know your profit every month, you know whether you're on track. You can raise a payment before it turns into a penalty. You also see a big year coming in time to plan for it, instead of finding out in April. If your books are behind, those numbers are a guess. A catch-up gets them current before your January 15 payment.
Key Takeaway: Pay at least 100% of last year's tax (110% if your income was over $150,000) in four equal payments, and you won't owe a federal penalty. The 2026 dates are April 15, June 15, September 15, and January 15, 2027. Set aside your own percentage from every job, and in California, front-load your state payments.
Your subs have the same problem from the other side. See 1099 for Subcontractors: What Contractors Need to File. And to lower the tax you're paying in the first place, read Contractor Tax Deductions: What You Can Write Off.
At Civita Tax Solutions, we help home service business owners save money on taxes with all-in-one accounting. We handle your bookkeeping, advisory, and tax filing. You focus on the business. We handle the finances.
We figure your quarterly estimated tax numbers from your actual books, and we check them again when the year changes. See how we work with contractors, or book a free consultation.
