Four Small Checks Beat One Ugly April: Estimated Taxes for Contractors
September 15 is a month away, and it is one of the strangest dates on a California contractor’s tax calendar. Here is what you owe the IRS, why you probably owe the FTB nothing that day, and how to stop guessing.
The short version
- If you take draws or distributions instead of a paycheck, nobody is withholding tax for you. The IRS expects four payments a year, not one.
- The next federal deadline is September 15, 2026. California is different: the FTB wants 30% in April, 40% in June, nothing in September, and 30% in January.
- Skipping payments costs about 7 cents per dollar per year right now, and it turns April into a cash flow cliff.
- The safe harbor rule turns guesswork into one fixed number based on last year’s tax.
Every spring I sit across from a contractor who just had his best year ever and feels like he is being punished for it. The jobs were profitable, the crew stayed busy, and now there is a tax bill the size of a work truck due all at once, plus the first payment for the new year due the same day. Nothing went wrong on the jobs. What went wrong was the calendar.
Why contractors get hit harder than anyone
If you earn a W-2 paycheck, tax comes out every week and you never think about it. If you run a construction business as a sole proprietor, an LLC, or an S corporation taking distributions, nothing comes out of your draws. The tax is still owed, and the IRS does not want to wait until April to collect it. It wants a payment every quarter, and it charges you when the money shows up late.
Construction makes this harder than it is for most businesses. Your income is lumpy. A concrete contractor in Escondido might collect $90,000 of profit in the spring building season and almost nothing in December. Progress billings, retainage held until closeout, and a supplier bill that lands before the owner pays you all make it tempting to treat the estimated payment as optional. It is not optional. It is a loan you are taking from the IRS at 7% without asking.
The four dates, and the California twist
Take a plumbing S corp owner in Vista who expects about $220,000 of profit this year, with roughly $48,000 of federal tax and $18,000 of California tax not covered by withholding. The federal side is simple: four equal payments of $12,000. California is not simple. The FTB front-loads its schedule: 30% in April, 40% in June, zero in September, and 30% in January.
| Due date | Federal (25% each) | California (30/40/0/30) |
|---|---|---|
| April 15, 2026 | $12,000 | $5,400 |
| June 15, 2026 | $12,000 | $7,200 |
| September 15, 2026 | $12,000 | $0 |
| January 15, 2027 | $12,000 | $5,400 |
That September zero surprises people every year. If you kept up with the April and June payments, you already sent the FTB 70% of the year’s total and you owe the state nothing next month. If you did not keep up, September is the month to fix it, because the FTB penalty clock has been running on those missed installments since spring.
What skipping a payment actually costs
The federal underpayment penalty is really interest, currently 7% a year, charged from the day each installment was due until the day you pay. Skip the $12,000 June payment and settle up when you file in April, and that one miss costs you about $700. Skip all four and pay the whole $48,000 at filing, and the penalty runs to roughly $2,200. California runs its own version of the same meter on its own schedule.
The penalty is the smaller problem. The bigger one is the cliff. The contractor who pays nothing all year does not owe $48,000 in April. He owes $48,000 plus the penalty plus the first $12,000 installment for the new year, all in the same week. That is over $62,000 out the door in a month when he is also floating payroll and material deposits for the spring jobs. I have watched that check wipe out a line of credit that was supposed to fund the next project.
Safe harbor: the number that ends the guesswork
The most common objection I hear is fair: how am I supposed to know what I will make this year? A kitchen remodeler in Oceanside cannot tell you in June what December looks like. The good news is you do not have to know. The safe harbor rule says the IRS will not penalize you if your four payments add up to 100% of last year’s total tax, or 110% if your adjusted gross income was over $150,000, which it is for most successful contractors.
So if last year’s total tax was $40,000, your safe number this year is $44,000, or $11,000 a quarter, even if this year turns out far better. Pay that and any remaining balance waits quietly until April with no penalty. One caution on the state side: California cuts off its prior-year safe harbor once your AGI reaches $1,000,000, so contractors with a big equipment sale or a monster year need current-year numbers instead.
The catch-up contractor
- Pays nothing during the year, settles up in April
- April 2027 outflow: $48,000 tax + $2,200 penalty + $12,000 new Q1 payment
- One check: $62,200 in the middle of spring ramp-up
Pays more, and pays it at the worst possible time
The safe harbor contractor
- Pays $11,000 per quarter off last year’s tax, no forecasting needed
- Zero penalty, balance due in April is known and planned
- April 2027 outflow: the remaining true-up plus Q1, nothing else
Same tax, spread out, no penalty, no cliff
How to actually set the money aside
The mechanics matter more than the theory. Open a separate tax savings account and move a fixed percentage of every owner draw into it the day the draw happens. For most of my construction clients, 30% to 35% of each draw covers federal and California combined. When the quarterly date comes, the money is already sitting there and the payment is a transfer, not a decision.
S corporation owners have one more tool. Withholding on your W-2 wages is treated as if it were paid evenly through the year, even if most of it comes out of a December paycheck. If you get to fall and realize you are behind, a large withholding bump on your last few payrolls can cure an underpayment in a way a late estimated check cannot. That is a move worth running past your CPA before Thanksgiving, not after.
Common questions
I had a slow first half. Do I still owe the full September payment?
Not necessarily. The annualized income method lets you compute each installment from what you actually earned to date, which fits construction seasonality well. You file Form 2210 with Schedule AI to show the math. It takes real bookkeeping to support, which is one more reason to keep job costing current.
Do I really send California nothing on September 15?
If you paid the April and June installments in full, yes, the state gets nothing in September. If you missed or shorted those payments, the FTB penalty has been accruing since the due dates, so use September to catch up even though no new installment is due.
This is my first profitable year. What is my safe harbor?
Safe harbor is based on last year’s total tax. If you owed little or nothing last year, your required payments can be surprisingly small, and if you had zero tax liability last year as a U.S. citizen with a full-year return, the federal penalty generally does not apply at all. Just remember the real tax is still coming in April, so bank for it even when the required payment is low.
Quarterly payments would drain my operating cash. What then?
That is usually a pricing or collections problem wearing a tax costume. If the business cannot part with roughly a third of the owner’s draws, the draws are outrunning the profit. Tightening progress billings, chasing retainage, and pricing change orders with full burden usually frees the cash. The estimated payment is the messenger, not the problem.
Want your September number before September?
We will pull your year-to-date numbers, run the safe harbor math for federal and California, and give you one fixed figure to pay. No guessing, no April cliff.
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