If you’re self-employed or own a small business, you might be required to pay estimated taxes on a quarterly basis. Unlike traditional employees who have taxes automatically withheld, independent contractors and freelancers must set aside and pay their taxes throughout the year. Failing to do so can result in penalties that can add up quickly.
Who Needs to Pay Quarterly Taxes?
In general, if you expect to owe more than $1,000 in taxes for the year, you may need to pay quarterly taxes. This applies if you’re earning income from self-employment, freelance work, or as a small business owner.
How to Calculate Your Payments
The IRS provides a worksheet (Form 1040-ES) to help you estimate your tax liability. You’ll calculate your expected income, subtract deductions, and determine your estimated tax payment for each quarter. To stay on track, it’s a good rule of thumb to set aside about 30% of your earnings for taxes.
Important Deadlines
The quarterly tax deadlines are typically in April, June, September and January of the following year. Missing these deadlines can result in penalties ranging from 6–8% on the amount owed.
How to Submit Your Payment
You can pay your quarterly taxes electronically through the IRS’s EFTPS system or mail a check with the appropriate IRS form (1040-ES) for the quarter. Keeping up with these payments helps you avoid a large bill (and potential penalties) during tax season.
Avoiding Penalties
Penalties for underpaying quarterly taxes can quickly add up. To avoid this, ensure you’re estimating your taxes correctly and paying on time.
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