How should a law firm owner handle quarterly estimated taxes?

Aim for a safe harbor and pay it in four installments, through Form 1040-ES payments, payroll withholding, or both. Federally, you avoid the underpayment penalty by paying, on time, at least the smaller of 90 percent of this year's tax or 100 percent of last year's, or 110 percent of last year's if last year's adjusted gross income was over $150,000. The 2026 federal due dates are April 15, June 15 and September 15, 2026, and January 15, 2027.

For owners whose income arrives in lumps, such as contingency fees, the prior-year safe harbor and the annualized income method do most of the work. Planning the year's payments is part of Kathryn Meyer's work on tax planning for law firms.

Who has to pay estimated tax

The IRS says individuals, including sole proprietors, partners and S corporation shareholders, generally have to make estimated tax payments if they expect to owe $1,000 or more when the return is filed. Estimated tax covers more than income tax: it also covers self-employment tax and other taxes on the return. A law firm owner taxed as a sole proprietor or partner usually has no withholding on business income, and an S corporation owner has withholding only on salary, not on distributions.

That is one reason the owner's salary matters beyond payroll tax. A larger salary means more withholding and smaller estimated payments; a smaller one shifts the burden to Form 1040-ES. The trade-off is explained in how much salary an S corporation owner should take.

How to set your 2026 payments, step by step

1. Find last year's numbers. Take the total tax and the adjusted gross income from your 2025 return. The prior-year safe harbor is not available if that return did not cover a full 12 months or was not filed.
2. Pick your target. Use 100 percent of 2025 tax, or 110 percent if 2025 AGI was over $150,000 ($75,000 if married filing separately). If you expect 2026 tax to be much lower, 90 percent of the 2026 tax may be the smaller figure.
3. Subtract expected withholding. Include income tax withheld from your own salary and any spouse's wages.
4. Divide by four. Each required installment is 25 percent of the required annual payment under section 6654(d).
5. Pay by each due date. Online through IRS Direct Pay, EFTPS or your IRS online account, or by mail with the 1040-ES voucher. The IRS says you can pay more often, weekly or monthly, as long as enough has been paid by the end of each quarter.
6. Recheck after a large fee or a slow quarter. If income is uneven, the annualized income installment method can lower the early installments; you then attach Form 2210 and its annualized income schedule to the return.
7. Do California separately. If you file a California return, its percentages and thresholds differ, as shown below.

The 2026 safe harbors and due dates

Federal dates are from the 2026 Form 1040-ES and section 6654(c); California dates and percentages are from the Franchise Tax Board's estimated tax page. Federally, you can skip the January 15, 2027 payment if you file your 2026 return by February 1, 2027 and pay the full balance with it.

Withholding as an alternative

Withholding has an advantage estimated payments do not. Under section 6654(g), income tax withheld is treated as paid in equal parts on each of the four due dates, unless you choose to show the actual dates it was withheld. An S corporation owner who realizes in November that payments have fallen short can raise the withholding on the remaining paychecks and have that tax count as if it had been paid evenly through the year. The IRS also points employees to a new Form W-4, which has a line for extra withholding.

Withholding on an owner's salary is a payroll tax deposit like any other, so it has to go in on the firm's schedule; see when a small law firm has to deposit payroll taxes.

A year in which you sell your practice can bring a large gain all at once, which the payments for that year need to cover; how that gain is figured is explained in how the sale of a law practice is taxed.

What changes the answer

• Last year's AGI. Over $150,000, the prior-year safe harbor rises to 110 percent (section 6654(d)(1)(C); 2026 Form 1040-ES).
• Uneven income. The annualized income installment lets a lawyer whose fees arrive late in the year pay smaller early installments (section 6654(d)(2); Form 2210). The statute measures each installment against the tax on income annualized for the months before its due date, with cumulative targets of 22.5, 45, 67.5 and 90 percent, so a lawyer whose large fee arrives in the fall owes less at the spring due dates.
• Withholding. Withheld tax is treated as paid evenly through the year unless you elect actual dates (section 6654(g)).
• No tax last year. No penalty applies if the prior year was a full 12-month year, you had no tax liability for it, and you were a U.S. citizen or resident all year (section 6654(e)(2)).
• Waivers. The IRS can waive the penalty for a casualty, disaster or other unusual circumstance, or for a taxpayer who retired after age 62 or became disabled, with reasonable cause (section 6654(e)(3); IRS estimated taxes page).
• Deductions that lower the tax. The qualified business income deduction under section 199A can change the tax you are estimating; see whether a lawyer can take the 20% qualified business income deduction.
• Entity-level state tax. If the firm elects California's pass-through entity elective tax, the FTB calls for a first payment by June 15 of the election year, the greater of $1,000 or 50% of the prior year's elective tax, which belongs on the same calendar as your estimates; see whether a California law firm should elect the PTE tax.

For example: a large fee in August

For example, imagine a married lawyer filing jointly whose 2025 AGI was $260,000 and whose 2025 total tax was $60,000. Because AGI was over $150,000, her prior-year safe harbor for 2026 is 110 percent, or $66,000. She expects $30,000 of withholding from her S corporation salary, so she pays the remaining $36,000 in four estimated payments of $9,000. In August a contingency fee arrives and her 2026 tax rises to $95,000. Her required annual payment is the smaller of 90 percent of $95,000, which is $85,500, or $66,000, so the $66,000 she paid through withholding and estimates protects her from the underpayment penalty, although she will owe the rest, $29,000, when she files. This is a hypothetical, not a real case.

Common mistakes with estimated taxes

• Using 100 percent when 110 percent applies. Owners who crossed $150,000 of AGI last year need the higher figure.
• Paying everything in January. The penalty is figured installment by installment, so a single late payment does not cover the earlier due dates; withholding is treated differently.
• Assuming a refund means no penalty. The IRS says you can owe the penalty for late or short payments even if you are due a refund.
• Forgetting self-employment tax. For a sole proprietor or partner, the estimate has to cover self-employment tax as well as income tax.
• Copying the federal schedule for California. California wants 30 percent and 40 percent in the first two installments and nothing in September.
• Leaving the balance unplanned. Meeting the safe harbor avoids the penalty, not the tax; set aside the difference for April.

What to do this week

1. Find your 2025 total tax and AGI, and decide whether 100 or 110 percent applies.
2. Add up 2026 estimated payments and withholding made so far.
3. Compare that total with three quarters of your required annual payment, since the September installment has passed.
4. If you are short, decide whether to make up the gap with a payment now or with extra withholding on remaining paychecks.
5. Calendar January 15, 2027, or plan to file by February 1, 2027 and pay in full.
6. If you file in California, check your installments against the 30, 40, 0 and 30 percent schedule.

Frequently asked questions

What does the underpayment penalty cost?

It is figured like interest, at the federal underpayment rate under section 6621, on the amount of each short installment for the period it stayed unpaid. The longer an installment goes short, the more it costs.

Does an S corporation owner pay estimated tax on distributions?

Distributions are not wages, so nothing is withheld from them. The Form 2553 instructions explain that an S corporation's income generally is taxed to its shareholders rather than to the corporation, so your share of the firm's income lands on your own return, and estimated payments or extra withholding have to cover it.

Can I pay monthly instead of quarterly?

Yes. The IRS says you can pay weekly, every two weeks or monthly, as long as you have paid enough by the end of the quarter.

What if I cannot pay the balance in April?

File on time and pay what you can, because the penalties for filing late and paying late are separate. The IRS's payment options are described in what IRS payment plan options there are.

Can the estimated tax penalty be removed?

Only on narrow grounds. The statute allows waivers for casualty, disaster or other unusual circumstances and for certain new retirees or disabled taxpayers; other penalty relief options are covered in whether IRS penalties can be removed.

Do health insurance premiums the firm pays for me matter?

For a more-than-2% shareholder they are added to W-2 wages and income tax withholding applies, so they change the figures on both sides; see how S corporation owners handle health insurance.

Can my spouse and I make joint estimated payments?

Usually, if you are married and expect to file jointly. The 2026 Form 1040-ES says you cannot make joint payments if either spouse is a nonresident alien, you are separated under a decree of divorce or separate maintenance, or you have different tax years. It adds that registered domestic partners and civil union partners whose relationships are not marriages under state law cannot make joint estimated payments; each takes credit only for the payments that person made.

Is an S corporation election worth it if I still have to pay estimates?

The election changes payroll tax, not the need to prepay income tax. Whether it fits your firm is the subject of Tax-Smart Lawyering.

Planning the year's payments

Kathryn Meyer spent more than two decades in the IRS Office of Chief Counsel and helps law firm owners plan withholding and estimated payments around uneven income. The Quarterly Tax Health Checkup builds a review into each quarter. Contact the firm or call (571) 560-8674.

Sources

• 26 U.S.C. 6654, Failure by individual to pay estimated income tax
• IRS Form 1040-ES (2026), Estimated Tax for Individuals
• IRS, About Form 1040-ES
• IRS, Estimated taxes
• IRS, Instructions for Form 2553
• Franchise Tax Board, Estimated tax payments
• Franchise Tax Board, Pass-through entity elective tax
• 26 U.S.C. 199A, Qualified business income