Do I Have to Pay Quarterly Taxes My First Year?

Yes — if you are starting a business or freelancing, you almost certainly have to pay quarterly taxes your first year. The IRS requires estimated payments from anyone who expects to owe $1,000 or more in federal tax after withholding and refundable credits, and that threshold is easy to cross once self-employment tax enters the picture.¹ A single first-year exception exists, but it is narrower than most new business owners expect.

The Two Triggers That Pull You In

Two rules decide whether you owe quarterly payments. The first is the general $1,000 rule: if your projected total federal tax for the year, minus any W-2 withholding and refundable credits, comes to $1,000 or more, you have to pay as you go.¹

The second is specific to self-employment. Net earnings of $400 or more from your business trigger self-employment tax, which covers both the employee and employer halves of Social Security and Medicare.² The rate is 15.3% of net earnings, so even modest first-year profit can push your total tax past $1,000. A side business netting a few thousand dollars, on top of a W-2 job with full withholding, can still land you in quarterly-payment territory because none of the SE tax is being withheld anywhere.

The One First-Year Exception

You can skip estimated payments for your first year only if all three of these were true last year:

Your total tax on last year’s return was zero, or you were not required to file.
Your prior tax year covered a full 12 months.
You were a U.S. citizen or resident alien for the entire year.

All three must apply.¹ The trap is the first condition. Zero tax liability is not the same as getting a refund. If you worked a W-2 job last year and had any tax withheld, your return almost certainly showed a positive number on line 24 (Total tax) of Form 1040 — that is your liability, and a refund only means your withholding exceeded it. Anything above zero on line 24 disqualifies you.

Safe Harbor: The Easy Target

Even when you do owe estimated payments, you do not have to predict your first-year income perfectly. Safe harbor rules let you avoid the underpayment penalty as long as your total payments during the year meet the smaller of:

90% of your current-year tax, or
100% of the total tax on last year’s return.

If your prior-year adjusted gross income was over $150,000 ($75,000 if married filing separately), the second option rises to 110% of last year’s tax.³

For most first-year business owners, the prior-year option is the practical choice. You already know last year’s number; divide it by four and you have a payment schedule that keeps the IRS off your back regardless of how much your new business ends up earning. Any additional tax gets settled at filing with no penalty.

How to Calculate the Amount

Form 1040-ES contains the worksheet the IRS designed for this calculation.⁴ You will estimate:

Gross income from all sources — business revenue, wages, interest, dividends.
Business expenses you can deduct: supplies, software, home office, equipment depreciation. Gross income minus these gives your net profit.
Adjustments including the deductible half of self-employment tax, retirement contributions to a SEP-IRA or solo 401(k), and self-employed health insurance premiums.
Standard deduction ($16,100 single, $32,200 married filing jointly for 2026) or itemized deductions.⁵
The qualified business income deduction, worth up to 20% of QBI for sole proprietors, partners, and S corporation shareholders, subject to phase-outs at higher income levels.

The worksheet applies the 2026 brackets, which run from 10% on the first $12,400 of taxable income (single) up to 37% on income above $640,600 (single).⁵ It then adds self-employment tax, subtracts expected withholding and credits, and divides the total by four.

Self-Employment Tax in Plain Terms

Self-employment tax is where first-year filers get the biggest surprise. The rate is 15.3% — 12.4% for Social Security and 2.9% for Medicare.⁶ The Social Security portion applies only to net earnings up to $184,500 in 2026.⁷ The Medicare portion has no cap.

Two adjustments soften the hit. The IRS applies a reduction before computing the tax, so you are not taxed on 100% of net profit, and you can deduct half of the self-employment tax you pay as an adjustment to gross income.² Both are built into the 1040-ES worksheet.

Your first estimate will not be perfect. If income shifts during the year, run the worksheet again and adjust the remaining payments. Monthly income and expense tracking makes those adjustments much less painful.

If You Launched Mid-Year

The default approach splits your annual estimated tax into four equal payments — which can create a problem if your business did not exist during the first payment period. The annualized income installment method fixes this by tying each quarterly payment to income you have actually earned by that point in the year. Earn nothing in the first period and your required payment for that period drops to little or nothing.⁸

To use it, fill out Schedule AI, part of Form 2210. Each column covers a cumulative period — January through March, January through May, January through August, and the full year — and the required payment is based on annualized income through each period.⁹ If you use Schedule AI for one quarter, you must use it for all four and file Form 2210 with your annual return.

The Four Deadlines

Payments are due four times a year, and the periods are uneven:

April 15, 2026 — for income earned January 1 through March 31.
June 15, 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.

Only two months separate the April and June deadlines, which trips up plenty of first-year filers. If a due date falls on a weekend or legal holiday, it shifts to the next business day.¹⁰ You can skip the January 15 payment entirely by filing your return and paying the balance in full by February 1.⁴

How to Send the Payment

IRS Direct Pay: free, no registration, transfers from your bank account with an immediate confirmation number.¹¹
EFTPS: requires advance enrollment, with a PIN mailed to you in five to seven business days, and handles larger payment amounts than Direct Pay.¹²
Debit card, credit card, or digital wallet through IRS-approved processors, with processing fees.¹³
Check or money order mailed with the payment voucher from Form 1040-ES. The postmark date counts.

If you want to use EFTPS, enroll well before your first deadline so the PIN arrives in time. Direct Pay is faster when you need to pay right now.

What Happens If You Miss or Underpay

The IRS charges an addition to tax for underpayment, calculated separately for each of the four periods based on the amount short and how long it stayed short.¹⁴ The underpayment interest rate for the first quarter of 2026 is 7% annually.¹⁵

Because the penalty is per quarter, overpaying later does not erase a shortfall from earlier. You can still owe an underpayment penalty for a specific quarter even if your annual return produces a refund.¹⁰ The IRS usually calculates the amount for you and sends a notice; you generally do not need to file Form 2210 unless you want to compute the penalty yourself or use the annualized method.⁸

Do Not Forget Your State

Federal is only half of it. Most states with an income tax require their own quarterly estimated payments, with thresholds ranging from as low as $100 to as high as $2,000; many sit at $500 or $1,000. Nine states — Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington, and Wyoming — have no state income tax, so no state estimated payments apply. Rates, deadlines, and penalty rules vary, so check your state department of revenue for the specifics before you build your first-year payment schedule.

1
Internal Revenue Service. Estimated Taxes
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Internal Revenue Service. Topic No. 554, Self-Employment Tax
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Internal Revenue Service. How Do I Know if I Have to Make Quarterly Individual Estimated Tax Payments
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Internal Revenue Service. Form 1040-ES, Estimated Tax for Individuals (2026)
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Internal Revenue Service. IRS Releases Tax Inflation Adjustments for Tax Year 2026
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Office of the Law Revision Counsel. 26 USC 1401 – Rate of Tax
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Social Security Administration. 2026 Cost-of-Living Adjustment (COLA) Fact Sheet
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Internal Revenue Service. 2025 Instructions for Form 2210 – Underpayment of Estimated Tax by Individuals, Estates, and Trusts
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Internal Revenue Service. Publication 505 (2025), Tax Withholding and Estimated Tax
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Internal Revenue Service. When Are Quarterly Estimated Tax Payments Due – Individuals 2
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Internal Revenue Service. Direct Pay With Bank Account
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Electronic Federal Tax Payment System. Welcome to EFTPS Online
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Internal Revenue Service. Payments
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Office of the Law Revision Counsel. 26 USC 6654 – Failure by Individual to Pay Estimated Income Tax
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Internal Revenue Service. Quarterly Interest Rates