Handbook / Estimated tax
Estimated taxes in your first year of self-employment (2026 tax year)
Tax-year note: Tax information on this page applies to the 2026 tax year (returns filed in 2027), from IRS pages checked in November 2026. Figures and dates are labelled with their tax year where they appear. Check current IRS pages before you rely on them.
In your first year working for yourself, nobody withholds tax from your business income. The IRS expects you to pay as you go through quarterly estimated payments. The rules can look confusing, but first-year owners often have a simpler path than they realise: last year's tax return. This guide explains how estimated tax works for the 2026 tax year when you are new to self-employment.
Who must pay
The 2026 Form 1040-ES says you generally must make estimated payments for 2026 if:
- you expect to owe at least $1,000 in tax for 2026 after subtracting withholding and refundable credits, and
- you expect withholding and refundable credits to be less than the smaller of 90% of the tax on your 2026 return or 100% of the tax on your 2025 return, provided your 2025 return covered all 12 months.
Higher-income taxpayers use 110% of prior-year tax instead of 100%; the guide to the safe harbor explains the thresholds.
The no-liability exception
The form also states that you do not have to pay estimated tax for 2026 if you were a U.S. citizen or resident alien for all of 2025 and had no tax liability for the full 12-month 2025 tax year. You had no tax liability if your total tax was zero or you did not have to file. This can apply to students, people returning to work after a break, or others with no 2025 tax.
Why the prior-year safe harbor helps new owners
Your first-year business income is hard to predict. Basing payments on 2026 income means guessing. The prior-year safe harbor removes the guesswork for penalty purposes: if your 2026 withholding and estimated payments total at least 100% of your 2025 tax, or 110% if your 2025 adjusted gross income was above the higher-income threshold, you generally avoid the underpayment penalty, even if you owe more when you file.
For someone who left a salaried job, 2025 tax may be a reasonable and known target.
Building a payment plan
- Find the total tax on your 2025 return.
- Multiply by 100% or 110% as applicable.
- Subtract any 2026 withholding from a job you held earlier in the year.
- Divide the remainder across the remaining 2026 due dates: April 15, June 15 and September 15, 2026, and January 15, 2027.
If you started mid-year, the annualized income installment method described in the form and Publication 505 may let you pay less in earlier periods.
The penalty
The IRS underpayment penalty applies when you do not pay enough tax during the year, or pay late. It is calculated on the amount underpaid and how long it was underpaid, and the IRS describes circumstances in which it may be waived or reduced. Meeting a safe harbor is the simplest protection.
Do not confuse the penalty with the bill
A safe harbor protects against the penalty, not against the tax. If your business does well, you may owe a large balance in April 2027. Set aside money from every payment you receive, based on your actual profit. The guide on how much to set aside shows how to work out a percentage.
Switching from a job
If you left employment during 2026:
- your wages and withholding before leaving count toward 2026
- withholding is generally treated as paid evenly through the year for penalty purposes
- your business income starts the self-employment tax clock
The guide to leaving your job covers the other financial steps.
Paying
The form lists electronic options including your IRS online account, Direct Pay and EFTPS. The guide to paying estimated taxes online walks through them.
Year two
After your first year, you will have a full year of self-employment results. Use them, and your 2026 tax, to plan 2027 payments.
Review after each quarter
After each payment date, compare your actual profit with your estimate and adjust the next payment up or down.
In your first year, use the 2026 Form 1040-ES tests: check the no-liability exception, aim for 100% or 110% of 2025 tax to avoid penalties, schedule four payments, and still set aside enough for the real bill.
Questions people ask
I had a job last year with withholding. Does that help?
Yes. If your 2025 return covered all 12 months, your 2025 total tax is the basis for the prior-year safe harbor, regardless of how it was paid.
What if I start my business partway through the year?
Estimated tax is due for the periods after you start earning. The annualized income installment method can reduce earlier required payments if income arrives late in the year.
Do my wages count?
Yes. Withholding from a job earlier in 2026 counts toward your payments, and for penalty purposes is generally treated as paid evenly through the year.
What if I owe a lot when I file?
If you met a safe harbor, you can owe a balance without an underpayment penalty, but you still need cash to pay it by the filing deadline. Keep setting money aside.
Do this week
- Find your 2025 tax return and note the total tax.
- Estimate your 2026 self-employment profit and any wages already earned this year.
- Compare paying 100% or 110% of 2025 tax with 90% of expected 2026 tax.
- Schedule your remaining 2026 payments by their due dates.
- Open a tax savings account and set aside part of every payment you receive.
Sources read for this page
- IRS: 2026 Form 1040-ES, estimated tax for individuals (PDF)
- IRS: estimated taxes
- IRS: underpayment of estimated tax by individuals penalty
Published November 8, 2026. Sources checked November 8, 2026. Rules, limits and forms change; the linked page is the authority.