Quarterly Estimated Taxes for Construction Contractors

Episode 84 of the Construction Accounting Podcast with George Ghazarian, CPA · 5 min 7 sec · Published 28 January 2026

Nobody withholds tax from a contractor draw. Profit lands in the account, gets spent on materials and equipment, and April arrives with a number nobody planned for.

Here are the four payment dates, the safe harbor percentages that keep penalties off your return, and what changes the day you put someone on the crew.

Why the April Bill Blindsides Contractors

A W-2 employee has tax pulled out of every check. A contractor running jobs, collecting payments and buying materials has nobody withholding anything. So the rule is that you pay throughout the year rather than once at the end. That is all an estimated tax is: pay-as-you-go tax.

And it is not only income tax. Most contractors operating as a sole proprietor or single-member LLC owe self-employment tax on top of it. Ignore the schedule and you get a big bill, interest and penalties — even though you paid in April, because you were supposed to pay as you earned.

The Four Due Dates

• April 15
• June 15
• September 15
• January 15 of the following year

If the 15th falls on a weekend or holiday, it rolls to the next business day. These are not optional if you are going to owe. They are the IRS telling you to pay in installments.

How Much to Send In

You are estimating. You are predicting how much profit you will have for the year and backing into what the tax bill looks like, which is genuinely hard in construction: a slow winter, big summer projects, a job that pays late, material swings. The practical rule is that if you are worried about penalties, overpay a little rather than underpay. Being slightly over becomes a refund or gets applied to your next return. Being short gets you penalties.

There is a floor on all of this. If you expect to owe less than $1,000 for the year after withholding and credits, you may not need estimated payments at all. That covers the person still holding a W-2 job who does a few thousand dollars of side work on weekends. Once the business is real, most of you will owe more than $1,000 and belong on a quarterly system.

The Safe Harbor Rules

Safe harbor is how contractors avoid penalties even when the estimate was not perfect. Do this and you are generally protected from underpayment penalties. There are two main tests.

1. Prepay 90% of this year’s total tax. If you are going to owe $20,000 for the year and you prepaid at least $18,000 through the year, you are usually good.
2. Prepay 100% of last year’s total tax, or 110% if your prior year adjusted gross income was over $150,000.

Both estimated tax payments and wage withholding from W-2 income count toward these. That is why last year’s return is not just paperwork — it is the number that protects you in a monster year.

Making the Payments

Estimated tax payments are made using Form 1040-ES, but almost nobody is mailing vouchers anymore. You can pay online through IRS Direct Pay straight from your bank, through EFTPS, or by credit or debit card, which carries a fee. Direct Pay or EFTPS keeps it clean. And remember that most states want estimated payments too, so depending on where you live you may be running federal and state estimates on the same calendar.

Hiring Help Changes the Filings

The moment you bring on help, you are either paying employees on W-2 or subcontractors on 1099, and those are not the same system.

With employees you are signing up for payroll tax deposits, quarterly Form 941 filings, W-2s issued every January, federal unemployment tax on Form 940, and state payroll and unemployment requirements that vary by state. That is a whole system, and payroll mistakes are the ones that get noticed. With subcontractors you are tracking payments, collecting W-9s and issuing Form 1099-NEC each year. Usually simpler, still rules.

When Both Spouses Are in the Business

This comes up constantly: one spouse runs jobs and bids, the other runs books, invoices and payroll. Where both spouses are truly co-owners and both materially participate — meaning both are actually working in the business — there may be a filing option called a qualified joint venture, which lets each spouse report their share of profit without forming a partnership or a corporation.

Extra rules apply in a community property state, and adding a third owner changes it entirely. This is a do-it-right-or-do-not-do-it area, so get it confirmed before you file that way.

The short version

• Estimated taxes are due April 15, June 15, September 15 and January 15
• Safe harbor: prepay 90% of current year tax or 100% of prior year tax
• The prior year test rises to 110% if prior year income was over the threshold
• You may not need estimates if you expect to owe under $1,000 for the year
• Hiring employees triggers Form 941, W-2s, FUTA on Form 940 and state payroll
• Paying subcontractors means collecting W-9s and issuing Form 1099-NEC each year

Related episodes

• Construction Payroll Mistakes That Wreck Your Business
• What Work Clothing Contractors Can Actually Deduct

Browse the full Construction Accounting Podcast archive

This episode is general information about how these rules work, not advice for your situation. Tax law changes and the right answer depends on your entity, your income and your circumstances. Talk to a CPA before acting on it.