How Estimated Quarterly Taxes Work

Self-employment tax is 15.3% (12.4% Social Security capped at $168,600 + 2.9% Medicare) applied to 92.35% of net profit. Income tax is estimated at 18% of taxable income after the standard deduction and half the SE tax. The safe-harbor rule lets you pay the smaller of 90% of this year's liability or 100% of last year's tax (110% if your prior tax exceeded $150,000), split into four payments.

Worked Example

With $100,000 revenue, $20,000 expenses, and $12,000 paid last year: net profit is $80,000, SE tax $11,304, and income tax $10,755 — a $22,058 total liability. The prior-year safe harbor ($12,000) beats the 90% rule ($19,852), so each quarterly payment is $3,000.

Penalty Protection

Payments are estimates, not exact bills — that is why the safe harbor exists. As long as you pay enough to satisfy the 90% or 100/110% rule, you owe no underpayment penalty even if your April 15 tax return shows a balance. If your income spikes mid-year, the annualized income installment method can lower required payments for early quarters.