The thought of having to pay taxes can be stressful. If you’re self-employed, it can be challenging to calculate what you owe.
It’s important to remember that when you are self-employed, no taxes are withheld from your income. As a result, self-employed people are generally responsible for quarterly taxes, also known as estimated tax payments.
We’re here to help you figure out if you need to pay quarterly taxes, how to calculate them, and more. Let’s dive in!
Do I need to pay quarterly taxes?
If any of the following apply to you during the year, you may have to pay quarterly taxes:
- You expect to owe $1,000+ on taxes.
- You made $400+ in self-employed/1099 income.
For the full details, check out the IRS’s clarification:
- “Individuals, including sole proprietors, partners, and S corporation shareholders, generally have to make estimated tax payments if they expect to owe tax of $1,000 or more when their return is filed.”
- And “Corporations generally have to make estimated tax payments if they expect to owe tax of $500 or more when their return is filed.”
There is one exemption to having to pay quarterly taxes, even if you are self-employed. Suppose you had zero tax liability for the previous year, as long as it covered a 12-month period, and you were a U.S. citizen or resident for the entire year. In that case, you are not required to make estimated tax payments in the current year.
What are quarterly taxes?
Quarterly tax payments mean that you pay your expected tax bill via four payments, rather than a single payment at the end of the tax year. These payments include self-employment taxes (Social Security and Medicare) and income taxes.
When you’re an employee, your employer withholds half of these taxes from your paycheck and then matches them. But, when you are self-employed, you are responsible for the total amount.
How much are self-employed quarterly taxes?
The self-employment tax rate is 15.3% (12.4% for Social Security tax and 2.9% for Medicare). The self-employment tax applies to your adjusted gross income.
If you are a high earner, a 0.9% additional Medicare tax may also apply.
Self-employment quarterly tax calculator
Here is how to calculate your self-employment quarterly taxes:
- Calculate your adjusted gross income from self-employment for the year.
- Apply the 15.3% tax rate to your adjusted gross income.
- Divide that amount by four to calculate how much you need to pay per quarter. Send this amount in equal payments according to the IRS quarterly tax payment schedule.
Additionally, Form 1040-ES has a worksheet to help determine your estimated taxes. If you overestimate your earnings, complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter. Again, if you underestimate your earnings, complete another Form 1040-ES worksheet to recalculate your estimated tax for the next quarter.
If you end up overpaying, you’ll receive a tax refund at the end of the year. Therefore, it’s better to be safe than sorry, as it will all balance itself out in the end.
How can I lower my quarterly tax payments?
The easiest way to lower your payments is by using a mileage and expense tracker. By tracking your work mileage and expenses, you should be able to find thousands of dollars worth of tax deductions. Finding more tax deductions means that more money stays in your pocket.
For instance, Everlance’s #1 mileage & expense tracker helps the average user find $6,500/yr in deductions. Remember: The more deductions you have, the lower your taxable income will be, and the less you’ll owe to the IRS.
When are quarterly tax payments due in 2021?
Make sure to pay estimated taxes on time. Here are the due dates for 2021:
- 1st Quarterly Estimated Tax Payment is due April 15, 2021
- 2nd Quarterly Estimated Tax Payment is due June 15, 2021
- 3rd Quarterly Estimated Tax Payment is due September 15, 2021
- 4th Quarterly Estimated Tax Payment is due January 15, 2022
The four estimated tax payments are usually due each year on the 15th of April, June, September, and January. If that date falls on a weekend or federal holiday, the filing deadline is pushed to the following business day. If you don’t pay on time, then you may be subject to a penalty.
What if I don’t pay the required quarterly taxes?
If quarterly taxes aren’t paid throughout the year by the IRS’s due dates, you will have to pay an Underpayment of Estimated Tax penalty when filing your yearly tax return in April.
What forms do I need to file quarterly taxes?
If you’re a contract worker, you should receive a Form 1099 from each business client that has paid you at least $600 during the tax year. Also known as an “Information Returns Form,” it provides the IRS with a record of your income for the year. If you’re a freelancer, you may have multiple 1099 forms from various employers. It’s essential to take them all into account when calculating estimated payments.
Other IRS forms may be required depending on the type of business entity you’re filing under. If you’re registered as a sole proprietor, LLC, S corp shareholder, or a self-employed individual, you must use Form 1040-ES to submit quarterly estimated tax payments. For other types of corporations, you must use Form 1120-W to file quarterly taxes.
How can I pay my quarterly taxes?
You can choose to make your quarterly estimated tax payments using one of the following options.
- Pay online. You can submit them online through the Electronic Federal Tax Payment System—a convenient, secure, and fast option.
- Pay by mail. Although not preferred by the IRS because it’s not as secure as the electronic options, you can mail in a check or money order made payable to “United States Treasury,” along with the estimated tax payment voucher. Where to send your payment depends on what state you live in, and you can find the complete list of addresses listed on Form 1040-ES.
When you file your annual return, you will pay any tax balance not covered by your quarterly payments. If you are behind on tax payments, learn how to set up an IRS Payment Plan.
How can I prepare for next year’s quarterly taxes?
The best way to prepare for quarterly taxes is to keep track of all your business mileage and expenses with well-kept records. The more deductions you have, the lower your taxable income will be, and the less you’ll owe to the IRS.
Everlance is the #1 app for tracking company mileage & expenses. With Everlance, you can automatically capture your car mileage and business expenses—which likely equal thousands of dollars of deductions. When preparing for taxes, download your mileage and expense records. Then, hand them over to your accountant or import them directly into your tax preparation software. Money saved! 🎉