Two of the most painful tax surprises for new business owners are quarterly estimated taxes and payroll tax deposits. Both have deadlines scattered through the year, both come with penalties for missing them, and neither shows up in a standard "tax day" checklist. Here's how each works.
Part 1 — Quarterly estimated taxes
When you're an employee, taxes are withheld from every paycheck, so the IRS gets paid as you earn. When you're self-employed or own a pass-through business, nothing is withheld — so the IRS expects you to pay in four installments.
Who owes estimates
- Sole proprietors and single-member LLC owners.
- Partners and S-Corp shareholders with profit left after salary.
- Anyone else with income that isn't subject to withholding (interest, dividends, capital gains, rental income).
The four deadlines
| Payment | Due date | Covers income from |
|---|---|---|
| 1st | April 15 | January – March |
| 2nd | June 15 | April – May |
| 3rd | September 15 | June – August |
| 4th | January 15 | September – December |
How much to pay
Two options:
- Pay your actual estimated tax for the year (income – deductions) ÷ 4.
- Pay the safe-harbor amount — at least 100% of your previous year's tax liability (110% if your adjusted gross income is over a set threshold). Meet the safe harbor and you're immune to the underpayment penalty, even if you owe more at filing.
The self-employment tax catch
For business owners, "estimated tax" includes self-employment tax — the 15.3% (12.4% Social Security + 2.9% Medicare) on your net self-employment income, on top of ordinary income tax. Two common underestimates: forgetting SE tax exists, and miscalculating it on gross instead of net earnings.
What happens if you miss one
The IRS charges an underpayment penalty (currently around 4–5% annualized on the shortfall, prorated by day) plus interest — and unlike most tax penalties, it's applied mechanically. There are exceptions (a first-year business with no prior-year liability, for example), but you can't simply "make it up at April 15" without cost.
Part 2 — Payroll taxes
If you have employees — or you're an S-Corp paying yourself a W-2 salary — you're now a payroll-tax collector and depositor.
What you collect and pay
On every paycheck:
- Withhold the employee's income tax + their half of FICA (7.65%).
- Add your employer half of FICA (7.65%).
- Deposit the combined amount to the IRS on a regular schedule.
For payroll under a set threshold, deposits are typically monthly (by the 15th of the following month). Larger payrolls deposit semi-weekly. State payroll taxes follow their own schedules.
The quarterly forms
- Form 941 — quarterly payroll tax return, due April 30, July 31, October 31, and January 31.
- W-2s — annual wage statements to employees and the IRS, due January 31.
- State forms — unemployment insurance and state withholding, per your state.
The trust-fund trap
The withheld portion of payroll taxes isn't your money — it's the employees' taxes you hold in trust. Failing to deposit it triggers the trust fund recovery penalty: up to 100% of the unpaid amount, assessed personally against owners and officers, with no bankruptcy discharge. It's the most serious penalty in small business. Don't borrow from payroll.
Common questions
Can I skip estimates if I have a side job with withholding? You can increase withholding from a W-2 job to cover your business income — the IRS treats withholding as timely paid throughout the year. Many people use this to avoid four separate payments.
What's the penalty if I'm short but paid something? Penalties are computed on the shortfall period by period. Partial payments reduce (but usually don't eliminate) the penalty.
Do S-Corp owners pay estimates? Yes — on income beyond their salary. The salary itself is covered by payroll withholding; distributions and any other pass-through profit need estimates.
Is payroll software required? Not required, but strongly recommended — it computes deposits, files forms, and tracks deadlines. The alternative is manual math on four deadlines a month.
I'm an S-Corp with just me — do I still do payroll? Yes. You must pay yourself a W-2 salary with payroll withholding. This is the #1 area we see new S-Corp owners get wrong.
Stay ahead of the calendar
The deadlines aren't hard — they're just scattered. A CPA (or a bookkeeper) can compute your estimates, set up payroll, and make sure the deposits land on time, so "tax season" stops being a surprise and becomes routine.