Whether or not you’re new to self-employment, it can be overwhelming to understand and pay quarterly taxes.
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!
What are quarterly taxes?
Quarterly taxes (also referred to as estimated taxes, estimated quarterly taxes, and estimated tax payments) involve paying taxes-as-you-go. Four times per year, you pay a quarter of your expected tax bill, rather than just a single payment at the end of the tax year.
These payments include self-employment taxes (Social Security and Medicare) and income taxes. Unlike employees—whose employers withholds half of these taxes from their paycheck and then matches them—when you are self-employed, you are responsible for the total amount.
Who is required to file 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.
How to calculate estimated taxes
The IRS recommends that self-employed people use Form 1040-ES to calculate their estimated quarterly tax payments. This process involves:
- Calculating your expected adjusted gross income, taxable income, taxes, deductions, and credits for the tax year. If you plan to itemize deductions, calculate the estimated total of your itemized deductions.
- Pro tip: not sure what you're going to earn this year? Use your income, deductions, and credits from the prior tax year as a starting point.
- Using the worksheet in Form 1040-ES to figure and file your estimated tax payment.
Note: If you realize that you’ve estimated your earnings too high or too low, just fill out a new Form 1040-ES worksheet to recalculate your estimated tax payment for the next quarter. You want to estimate your earnings as accurately as possible to avoid any penalties.
Who should pay estimated taxes?
Most self-employed people (a.k.a. freelancers, independent contractors, small business owners) are expected to pay estimated taxes—especially if self-employment is your sole source of income. If you’re in doubt, it doesn’t hurt to pay quarterly taxes anyways! Better to be safe than sorry.
The IRS expects you to pay taxes as you earn income. If you end up underpaying during a tax year (via withholding or estimated quarterly payments), the IRS may charge penalties on late payments. Paying estimated quarterly taxes also has the benefit of working like a payment plan—paying smaller amounts throughout the year versus a large lump some at one time.
The IRS has a general rule to determine if you should make quarterly estimated tax payments in 2021:
“In most cases, you must pay estimated tax for 2021 if both of the following apply.
1. You expect to owe at least $1,000 in tax for 2021, after subtracting your withholding and refundable credits.
2. You expect your withholding and refundable credits to be less than the smaller of:
a. 90% of the tax to be shown on your 2021 tax return,
or b. 100% of the tax shown on your 2020 tax return. Your 2020 tax return must cover all 12 months.”
What taxes do self-employed people pay?
Self-employed people are responsible for annual tax returns and are also usually responsible for paying estimated quarterly taxes. Quarterly taxes generally include the self-employed tax (social Security tax + Medicare tax) and income tax.
In 2021, the tax rate is:
- Self-employment tax rate: 15.3% (12.4% Social Security tax and 2.9% Medicare tax)
If you are a high earner (over $200k), you’d be subject to an additional Medicare tax.
When you file your annual return, you will pay any tax balance not covered by your quarterly payments.
When are quarterly taxes due for 2021?
Make sure to pay estimated taxes on time. Each quarter, you're expected to pay taxes for that quarter's payment period. Here are the due dates for 2021:
- Payment period: January 1 – March 31
- Tax payment is due April 15, 2021
- Payment period: April 1 – May 31
- Tax payment is due June 15, 2021
- Payment period: June 1 – August 31
- Tax payment is due September 15, 2021
- Payment period: September 1 – December 31
- 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.
How to pay quarterly taxes
What forms do you need to file quarterly taxes?
If you’re an independent contractor, 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. Therefore, 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. For example, 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.
How can you pay your quarterly taxes?
There are many ways to pay quarterly taxes, from paying online to by phone or by mail. Many people choose to pay online because it is fast, easy, and secure. Visit the IRS’s guide to paying your taxes for instructions, or consult with your tax advisor about the best way for you to file and pay your quarterly estimated taxes.
Pro tip: Stay on track for next quarter’s taxes.
If you stay organized, you don’t have to get organized.
The best way to prepare for quarterly taxes is to keep track of all your business mileage and expenses with well-kept records. Then, 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 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! 🎉