There is a specific kind of financial surprise that nobody warns you about until it is sitting right in front of you.

You started freelancing, launched a small business, or picked up some extra income on the side. Things are going well. You feel good about it. And then tax season arrives and someone tells you that you might owe a penalty.

It’s not because you did anything wrong or because you missed a filing. Just because you did not make quarterly payments throughout the year.

That is the estimated tax situation, and it catches a lot of people completely off guard.

If that sounds familiar, or if you want to make sure it never does, keep reading. This one is worth understanding.

So What Exactly Are Estimated Taxes?

When you work a traditional job, your employer withholds taxes from every paycheck and sends them to the IRS on your behalf. You probably do not think much about it. It just happens automatically.

But when you are self-employed, freelancing, running a business, or earning income that does not have taxes withheld, no one is doing that for you. The IRS still expects to receive taxes throughout the year. So they created a system where you pay in four installments instead of one lump sum at the end.

Those installments are estimated taxes.

They are not a penalty. They are not extra. They are simply the mechanism for paying taxes on income that has no automatic withholding attached to it.

Think of it like this. The IRS is not trying to ambush you in April. They just want to receive money as you earn it, the same way they do when an employer is in the picture.

Who Actually Has to Pay Them?

This is the question most people have, and the honest answer is: more people than you might think.

According to the IRS, you generally need to make estimated tax payments if you expect to owe at least $1,000 in federal taxes after subtracting any withholding and credits, and if your withholding covers less than 90 percent of what you owe for the current year, or less than 100 percent of what you owed last year.

In plain language, that typically includes:

• Freelancers and independent contractors
• Small business owners and sole proprietors
• Gig workers, whether that is rideshare driving, delivery, or platform-based work
• Landlords receiving rental income
• Investors with significant dividends or capital gains
• Anyone who receives self-employment income without an employer withholding taxes

It can also apply to people who receive a large bonus, sell an investment, or pick up significant side income mid-year, even if they have a regular job with withholding.

If any of that sounds like your situation, it is worth paying attention to the deadlines coming up.

When Are Estimated Tax Payments Due?

The IRS divides the year into four payment periods. For the 2026 tax year, the deadlines are:

• April 15, 2026 for income earned January 1 through March 31
• June 16, 2026 for income earned April 1 through May 31
• September 15, 2026 for income earned June 1 through August 31
• January 15, 2027 for income earned September 1 through December 31

The June 16 deadline is coming up soon, which makes this a good moment to get familiar with the process if you have not already.

What Happens If You Skip Them?

Skipping estimated taxes does not mean you are off the hook until April. It means the IRS may charge an underpayment penalty when you file your return.

The penalty is not enormous, but it is also not nothing. It is calculated based on how much you underpaid and for how long, and it gets added to whatever you already owe at the end of the year.

The part that frustrates people is that it can feel unfair. You paid your taxes. You just paid them late. But from the IRS perspective, the timing matters just as much as the amount.

The good news is that underpayment penalties are avoidable when you understand the system in advance, which is exactly what you are doing right now.

How Much Should You Pay?

This is where a lot of people get stuck, because the honest answer is: it depends.

A straightforward starting point is to look at what you owed last year. If you pay in at least that amount across the four quarters, the IRS generally will not penalize you for underpayment, even if you end up owing more when you file. This is sometimes called the safe harbor rule.

For 2026, the IRS also offers a withholding estimator tool on their website that can help you calculate a reasonable payment amount based on your income and circumstances.

If your income is irregular or you had a significantly different year than last year, it is worth working through the numbers carefully rather than guessing.

How Do You Actually Pay?

The easiest way is through the IRS Direct Pay system at IRS.gov. You can pay directly from a bank account at no cost, and you can schedule payments in advance so deadlines do not sneak up on you.

You can also pay by credit or debit card, by mail with Form 1040-ES, or through the Electronic Federal Tax Payment System, known as EFTPS, which many small business owners prefer for its flexibility.

Whatever method you choose, keep a record of each payment. You will need those amounts when you file your annual return.

A Note on Self-Employment Tax

One thing worth mentioning while we are here: if you are self-employed, you are not just paying income tax on your earnings. You are also responsible for self-employment tax, which covers Social Security and Medicare contributions.

When you have an employer, they cover half of this. When you are self-employed, you cover all of it. That rate is 15.3 percent on net self-employment income up to a certain threshold.

This is part of why self-employed individuals can end up owing more than they expected, even when they set aside what feels like a reasonable amount. Factoring in both income tax and self-employment tax from the beginning helps avoid that surprise.

The Simple Way to Stay on Top of It

You do not need a complicated system. A few straightforward habits go a long way.

Set aside a percentage of every payment you receive throughout the year. A common starting point for self-employed individuals is somewhere between 25 and 30 percent, though the right number varies depending on your income level and deductions. Keep that money in a separate account so it is not accidentally spent before a payment is due.

Mark the quarterly deadlines on your calendar now. The next one is June 16.

And if your income changes significantly during the year, revisit your estimates. One of the most common mistakes is setting a number in January and never adjusting it, even as circumstances shift.

We Are Here to Help You Figure Out Your Number

Estimated taxes are one of those topics where the concept is simple but the calculation is personal. Your income, your deductions, your business structure, and your goals all factor into what makes sense for your specific situation.

At Watson & Associates, we work with self-employed individuals, small business owners, and anyone navigating income that falls outside the standard withholding system. If you are not sure whether you owe estimated taxes, how much to pay, or whether you are already behind, we are glad to help you work through it.

No judgment. No complicated explanations. Just clear guidance that helps you stay ahead of the IRS instead of catching up to it.

Reach out anytime at mywatsoncpa.com or give us a call at 850-668-2228.