If you’re self-employed or own a business in California and expect to owe $500 or more in state income tax for the year, you’re required to make estimated tax payments to the Franchise Tax Board. This catches most contractors, tradespeople, and service business owners because there’s no employer withholding taxes from your pay.

California’s payment schedule has four deadlines, but the percentages aren’t split evenly like federal estimated taxes. The breakdown is 30% due April 15, 40% due June 15, 0% due September 15 (yes, nothing is due), and 30% due January 15 of the following year. This catches a lot of people off guard because they assume it mirrors the federal 25/25/25/25 split. Miss a payment or short one of these and the FTB charges underpayment penalties that add up fast.

There are two safe harbor methods to avoid underpayment penalties. The first is paying at least 90% of your current year tax liability through estimated payments. The second is paying 100% of your prior year California tax liability, or 110% if your adjusted gross income was over $150,000 ($75,000 if married filing separately). For construction and contractor businesses where income can swing significantly from year to year, the prior year method is often simpler because you already know the number.

You make payments using Form 540-ES or through the FTB’s online payment system. Setting up web pay through the Franchise Tax Board website lets you schedule payments ahead of time so you don’t miss deadlines. If you’re also making federal estimated payments to the IRS, keep these separate. California and federal are two distinct obligations with different amounts and different rules.

The most common mistake for trades and service business owners is not setting aside money throughout the year. When a big payment comes in for a completed job, it’s tempting to put everything back into the business or take a draw. Then April or June arrives and the cash isn’t there for the estimated payment. A good rule of thumb is setting aside 25-30% of net income as it comes in, parking it in a separate savings account you don’t touch until payment time.

If your income varies a lot by season, you can use the annualized income installment method to calculate payments based on income actually earned in each period rather than spreading the full year estimate evenly. This helps if you earn most of your income in summer months but have slower winters.

Planning estimated payments is one piece of a larger contractor bookkeeping and tax picture. When your books are accurate and up to date, calculating what you owe each quarter becomes straightforward instead of a guessing game. And when you’re not guessing, you avoid both underpayment penalties and the cash flow shock of writing a check bigger than it needed to be.