Partnership Estimated Tax Payments: Who Is Responsible?

For federal income tax purposes, a partnership is a “pass-through” entity, meaning the business itself does not pay income tax on its profits. Instead, financial results like income, deductions, and credits are passed directly to the individual partners. The partners then report their shares of these items on their personal tax returns, a structure that avoids the double taxation found in C-corporations.

The partnership files an annual information return, Form 1065, which details its financial activity and how it was allocated among the partners. Because partnership income is not subject to automatic tax withholding like an employee’s wages, partners must pay estimated taxes throughout the year to cover their liability.

The Partner’s Responsibility for Estimated Taxes

The responsibility for paying income tax lies with the individual partners, not the partnership entity. Because the partnership acts as a conduit for income, its profits flow through to the partners, who are then taxed at their individual income tax rates. This system ensures that business profits are taxed only once.

Partners are not considered employees, which means the business does not withhold income taxes from their distributions or guaranteed payments. Partners must account for their share of the partnership’s earnings and pay the associated taxes directly to the IRS. This includes income tax and self-employment taxes, which cover Social Security and Medicare contributions.

Two types of income from a partnership are subject to estimated tax payments. The first is the partner’s distributive share of the partnership’s profits and losses. The second type is guaranteed payments, which are payments made to a partner for services or the use of capital, determined without regard to the partnership’s income. Both forms of income must be included when calculating a partner’s estimated tax liability.

Calculating Partner Estimated Tax Payments

Calculating estimated tax payments begins with information from the partnership’s Schedule K-1 (Form 1065). This document details a partner’s specific share of financial items for the year, such as ordinary business income, rental income, interest, dividends, and capital gains. Partners use these figures to determine the income they must account for in their personal tax calculations.

To determine the required quarterly payment, individuals use the worksheet with IRS Form 1040-ES. The goal is to meet one of the IRS “safe harbor” rules to avoid underpayment penalties. These rules require a taxpayer to pay the lesser of 90% of the tax on their current year’s return or 100% of the tax on their prior year’s return. For taxpayers whose adjusted gross income (AGI) in the prior year exceeded $150,000 ($75,000 for married individuals filing separately), the prior-year threshold increases to 110%.

A method suitable for partners with uneven income is the Annualized Income Installment Method. This approach allows a partner to calculate their required payment for each quarter based on the actual income earned during that period, instead of paying four equal installments. To use this method, the taxpayer must file Form 2210 with their annual tax return, attaching Schedule AI to show how each installment was calculated.

Making the Payments

After calculating the estimated tax owed for a quarter, the partner must submit the payment to the IRS. The tax year is divided into four payment periods, with due dates for a calendar-year taxpayer on April 15, June 15, September 15, and January 15 of the following year. If a due date falls on a weekend or a legal holiday, the deadline is pushed to the next business day.

The IRS offers several payment methods:

• IRS Direct Pay, an online service that allows payments directly from a checking or savings account at no cost.
• The Electronic Federal Tax Payment System (EFTPS), a free government service that can be used for all federal tax payments and allows for advance scheduling.
• Mail, by sending a check or money order to the IRS accompanied by the appropriate payment voucher from Form 1040-ES.
• Debit card, credit card, or digital wallet, though these services are handled by third-party processors that may charge a fee.

Underpayment Penalties

Failing to pay enough tax through estimated payments can lead to an underpayment penalty. This penalty is an interest charge on the underpaid amount for the period it was due. The IRS calculates this penalty for each required installment, so a taxpayer could owe a penalty for an early quarter even if they overpay later. The penalty may apply even if the taxpayer is due a refund when they file their final return.

The best way to avoid this penalty is to meet one of the safe harbor rules previously discussed. If a taxpayer’s total payments meet one of these thresholds and they owe less than $1,000 in tax with their return, a penalty is not assessed.

The IRS may reduce or waive the underpayment penalty in certain situations. This can happen if the failure to pay was due to a casualty, disaster, or other unusual circumstance. A waiver might also be granted if the taxpayer retired (after age 62) or became disabled during the tax year or the preceding one, and the underpayment was due to reasonable cause. To request a waiver, the taxpayer must file Form 2210.

Exceptions When the Partnership Pays Tax

While the pass-through model is standard, some circumstances require a partnership to pay tax at the entity level. An exception introduced by the Bipartisan Budget Act of 2015 established a Centralized Partnership Audit Regime. This regime allows the IRS to assess and collect tax underpayments directly from the partnership after an audit. This “imputed underpayment” is calculated at the highest tax rate, but the partnership can elect to “push out” the adjustments to the partners from the year under review.

Another exception involves state-level Pass-Through Entity Tax (PTET) elections. In response to the $10,000 cap on the federal deduction for state and local taxes (SALT), many states enacted PTET laws. These laws let partnerships elect to pay state income tax at the entity level. This payment is deductible as a business expense on the partnership’s federal return, bypassing the individual SALT deduction limit for the partners. The partners then receive a credit on their state income tax returns for the tax paid on their behalf.

A bill passed by the House of Representatives in May 2025 proposes changes to this strategy. The bill would eliminate the federal deduction for PTET payments made by businesses in service fields like health, law, and finance. The same proposal would also increase the individual SALT cap to $40,000, subject to income-based phase-outs.