There are all kinds of days we look forward to throughout the year—like birthdays, the Friday before a three-day weekend and National Pancake Day. Then there are some days we’d rather skip altogether. We’re looking at you, Tax Day.
But the irony is we don’t really “pay” our taxes on Tax Day. In fact, by the time the tax deadline rolls around, most U.S. workers will have already paid their taxes in full. That’s because their employers withhold taxes from their paycheck before it ever hits their bank accounts.
But what if you’re a freelancer or a contract worker with no employer to withhold those taxes? Yes, you still have to pay taxes just like everyone else. But now it’s your responsibility to make sure you pay them. And that means there’s a chance you might need to pay quarterly taxes to the IRS.
What all does that mean? Read on to find out.
What Exactly Are Quarterly Taxes?
Quarterly taxes (or estimated taxes) are how self-employed individuals have to pay their taxes to the IRS throughout the year if your income exceeds a certain amount. So depending on how much self-employed income you earn, you could have not one, but four “Tax Days” during the year.
Quarterly taxes (or estimated taxes) are how self-employed individuals have to pay their taxes to the IRS throughout the year if your income exceeds a certain amount.
These four tax payments, made every three months, are meant to cover Social Security, Medicare and your income tax. Here are the two kinds of taxes to know about:
Self-employment tax: This tax is generally 15.3% of your self-employed income, and it rolls your share of Medicare and Social Security taxes into one tax.1 When you’re a salaried employee, your employer will split the cost of those taxes with you. But when you’re in business for yourself, you’re responsible for the whole thing.
Income tax: You’ll pay taxes on your income at your income tax rate, just like everyone else.
That’s why we recommend you set aside around 25–30% of every paycheck for taxes if you’re self-employed. That way, you’re not blindsided by a huge tax bill when it’s time to pay up.
We recommend you set aside around 25–30% of every paycheck for taxes if you’re self-employed. That way, you’re not blindsided by a huge tax bill when it’s time to pay up.
Who Pays Quarterly Taxes?
Freelancers, independent contractors and small-business owners who expect to owe at least $1,000 in taxes from their self-employed income all pay quarterly taxes. If you owe less than that, you can just pay your taxes on that income when you file your annual tax return.
Freelancers, independent contractors and small-business owners who expect to owe at least $1,000 in taxes from their self-employed income all pay quarterly taxes.
If you’re not sure if you’ll need to pay quarterly taxes, you should reach out to a tax professional who can help you figure out which camp you fall into. If you wind up owing a significant amount and didn’t file quarterly, you may have to pay an underpayment penalty on top of the taxes you owe. So, don’t overlook this!
When Are Quarterly Taxes Due?
If you’re one of the many Americans who need to file quarterly, circle these deadlines on your calendar or set reminders on your phone so you don’t forget to pay on time! If you’re late on a payment, you’ll be hit with penalties each month that could go as high as 25% of your unpaid taxes.2 In a traditional tax year, here are the quarterly deadlines.
|When You Get Paid||Tax Due Date3|
Jan. 1–March 31
April 1–May 31
June 1–Aug. 31
Sept. 1–Dec. 31
Jan. 15 of the following year
How Do I Figure Out How Much I Owe in Quarterly Taxes?
Alright, it’s time to dust off your calculator and crunch some numbers! Here’s a step-by-step process to help you figure out how much you’ll need to pay in estimated quarterly taxes. Remember, this is just an estimate. Depending on your income, the tax year, your filing status and eligible deductions, your quarterly taxes will vary. And don’t get us started on state income taxes!
Step 1: Estimate your taxable income this year.
Let’s say you’re filing single and have a small business that you expect will bring in $50,000 in gross self-employed income. After deducting your business expenses, you estimate your taxable income will be about $35,000.
Step 2: Calculate how much you’ll owe in income and self-employment tax.
Using our example, at the current tax rate, you’d owe about $4,000 in income taxes.4 And as we mentioned earlier, the self-employment tax is generally 15.3% of your net income—so that means you’ll owe another $4,950 for the year. Add your income tax and self-employment tax together, and you’ll get to your estimated taxes for the year. In this case, that total estimated tax bill for the year is $8,950.
Income Tax: $4,000
+ Self-Employment Tax: $4,950
Estimated Annual Taxes: $8,950
Step 3: Divide your estimated total tax into quarterly payments.
Since you owe more than $1,000 in taxes, the estimated annual tax is what you’re going to base your quarterly taxes on. All you have to do is divide that total amount into four quarterly payments you’ll pay to the IRS every three months. In this case, that would be $2,238.
Step 4: Send an estimated quarterly tax payment to the IRS.
Now that you’ve figured out your quarterly tax payment, all you have to do is pay Uncle Sam! There are several ways you can go about paying your quarterly taxes:
Pay online. You can go to the IRS payment page and set up online payments for your taxes using a bank account or a debit card.5
Pay by phone. You could enroll for free in the Electronic Federal Tax Payment Service (EFTPS) and use their voice response system to pay your taxes over the phone.6
- Pay by app. This is the 21st century, after all, so now you can pay your taxes through the IRS2Go app right on your phone or tablet.7 What a time to be alive!
- Pay by cash or check. You can go really old-school and pay in-person at your local IRS office or mail in a check or money order.8
And there are a couple more things you need to remember. First, remember the taxes above are just an estimate. You still need to file an annual tax return along with everyone else, showing what you actually made during the year. And second, if business is going well and you see that your income is going to be higher or lower than you thought it would be, you can always adjust your estimated taxes each quarter. If not, you might end up paying more on Tax Day if you underpaid or get a tax refund if you overpaid, just like everyone else.
You still need to file an annual tax return along with everyone else, showing what you actually made during the year.
Get Help With a Tax Pro
Still have questions about your self-employment income and whether or not you’ll need to pay quarterly taxes to the IRS? Maybe you’re not sure if your quarterly tax estimates are right? Or maybe you're not sure what you’ll need to have in hand to file your taxes? Take our quiz to find out if you should self-file or work with a tax pro this year.
Business taxes can be confusing. Get the help you need.
We know just the right people to help you set up your quarterly taxes with confidence. Whether you’re a small-business owner or an individual filer looking for some guidance, our tax Endorsed Local Providers (ELPs) can help you figure out your tax situation so you can get back to doing the work you love most.