Guides · Taxes

Estimated Quarterly Taxes for Locums

Published 5 August 202611 min read

This is the thing that goes wrong in a first locum year. Not the tax arithmetic — the cash flow. Money arrives gross, it looks like income because it is sitting in a bank account, and in April a number appears that is a third of everything earned. The penalty on top is usually small; the shock is not.

The mechanics are simple and worth learning once.

Why you have to do this at all

The United States runs a pay-as-you-go tax system. An employee satisfies it through withholding. A 1099 contractor has no withholding, so IRC § 6654 requires four instalments across the year and charges an addition to tax if they are late or short.

Two points people get wrong immediately. The instalments cover federal income tax and self-employment tax together — for a locum, the self-employment portion alone is often $8,000 a quarter. And the penalty is calculated quarter by quarter, so paying nothing until April does not avoid it even if the balance is settled in full and on time.

The 2026 dates

They are not quarters. Q2 covers two months, Q3 covers three, Q4 covers four. This trips up anyone dividing the year into equal thirteen-week blocks, and it matters if you use the annualised income method described below. If a due date falls on a weekend or a legal holiday it moves to the next business day.

The two safe harbours — and why you want the second one

Section 6654 gives you two ways to be safe. Meet either and no underpayment penalty applies, however large the final balance turns out to be.

• Current-year method: pay at least 90% of this year's total tax across the four instalments.
• Prior-year method: pay at least 100% of last year's total tax — or 110% if your prior-year adjusted gross income exceeded $150,000 ($75,000 if married filing separately).

Almost every locum should use the prior-year method. The current-year method requires you to forecast a year of income that depends on assignments you have not been offered yet; the prior-year method requires one number from a return you have already filed. It is a known quantity on 15 April, it does not move, and it is completely immune to a good year.

The trap in the prior-year method is a first locum year. If 2025 was your residency or an employed post, last year's tax was small, so 110% of it is small — and you will safely underpay your way into a very large April balance with no penalty and no money set aside. The safe harbour protects you from the IRS, not from yourself.

How much to set aside

A working rule for a full-time locum in a state with income tax: hold back 35–40% of every payment. In a no-income-tax state, 30–35%. That is deliberately a little more than you will need, because the failure mode on the low side is much worse than the failure mode on the high side.

The calculator gives you the actual figure rather than a rule of thumb: it projects the whole year and divides federal income tax plus self-employment tax by four, and shows the state instalment separately.

How to pay

• IRS Direct Pay at irs.gov/payments — free from a bank account, no registration. Select "Estimated Tax" and the correct tax year. This is the simplest option for most people.
• EFTPS — the Electronic Federal Tax Payment System, free, allows scheduling all four instalments in advance. Enrolment takes several days because a PIN arrives by post, so set it up before you need it. Scheduling the year in one sitting removes the possibility of forgetting.
• Card — works, carries a processing fee of roughly 1.8–2%. Rarely worth it.
• Form 1040-ES vouchers by post — still available, and still a bad idea when the deadline is a postmark.

State estimates are separate: a separate agency, a separate form, a separate portal, and occasionally different due dates. Check the revenue department of every state you work in — a locum working assignments in three states may owe estimates in more than one of them.

The withholding trick, if you have any W-2 income

Estimated payments are credited when made, so a payment in January does nothing for a Q1 shortfall. Withholding is different: it is treated as paid evenly across the year regardless of when it was actually withheld.

That gives you a genuine repair mechanism. If you reach November having underpaid, and you or your spouse have any W-2 income, increasing withholding on the remaining paychecks — or taking a withholding election on a retirement distribution — retroactively fills the earlier quarters. It is the only way to cure a Q1 underpayment in Q4, and it is entirely legitimate.

If your income is lumpy — the annualised method

Locum income rarely arrives evenly. A physician who works nothing in the spring and three back-to-back assignments in the autumn is required by the default rule to have paid four equal instalments, which is nonsense on those facts.

The annualised income instalment method, computed on Schedule AI of Form 2210, lets you pay each instalment based on income actually earned by that point. It genuinely helps a back-loaded year. It also requires accurate books through each period end, and it is a job for your preparer, not a spreadsheet you build in April.

For most people the prior-year safe harbour is simpler, safer and cheaper than annualising. Use annualising when the prior-year number is large and this year is clearly going to be much smaller.

What the penalty actually is

It is not a flat fine. It is interest, charged at the federal short-term rate plus three percentage points, on each shortfall, for each day it was outstanding, compounded daily. In a period of higher rates that has been around 7–8% annualised.

Practically: a $10,000 shortfall in Q1 paid off in April of the following year costs roughly $700. Unpleasant, not catastrophic — which is exactly why the real risk is spending the money rather than the penalty itself. The IRS computes the penalty for you if you do not file Form 2210, and it can be waived in narrow circumstances such as casualty, disaster, or retirement after age 62 or disability during the year.

A first-year checklist

1. Find total tax on last year's Form 1040 (the total tax line, not the balance due). Multiply by 1.10 if your AGI was over $150,000.
2. Divide by four. That is your instalment.
3. Schedule all four in EFTPS in January, or set four calendar reminders.
4. Open a separate tax savings account and move 35% of every payment into it on arrival.
5. Check whether each state you will work in requires its own estimates.
6. If this is your first year of self-employment and last year's tax was low, ignore the safe harbour for saving purposes and set aside the real percentage anyway.
7. Re-run the projection in September, when you can see the shape of the year.

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