If you are self-employed as an independent contractor or freelancer or run your business as a sole proprietorship or a business partnership, you will need to calculate and pay your estimated self-employed quarterly tax obligations. This includes your Social Security and Medicare self-employment taxes, as well as your income taxes.
Tax calculators and worksheets can help you estimate your tax obligations. A fee-only financial planner can help you assess the impact of business strategy changes on your tax obligations.
Do you need to pay quarterly estimated tax payments?
U.S. citizens, resident and nonresident aliens, and residents of Puerto Rico, the U.S. Virgin Islands, Guam, the Commonwealth of the Northern Mariana Islands, and American Samoa who meet the following criteria must pay quarterly taxes:
- After estimating your quarterly taxes, you owe more than $1,000, even after subtracting any applicable withholding and refundable credits.
- You expect your withholding and tax credits to be less than:
- 90% of your estimated tax liability for this tax year
- 100% of the previous year’s tax liability; this increases to 110% if your gross income is higher than $150,000 ($75,000 if you are married and file separately).
If you earn more than two-thirds of your income through farming or fishing, you follow different quarterly tax rules.
Why do you need to pay your taxes quarterly?
The Internal Revenue Service (IRS) requires U.S. earners to pay taxes as they earn income. When you complete Form W-4, the Internal Revenue Service withholds taxes from your paycheck if you are a W2 employee. When you are self-employed, you must estimate and pay your taxes quarterly.
The IRS charges penalties for tax underpayment or late payments, so make sure you pay enough taxes on a quarterly basis.
How do you estimate your quarterly taxes?
Freelancers, independent contractors, sole proprietors, and partners typically use Form 1040-ES to calculate their estimated taxes.
Follow these steps:
- Determine your expected annual gross income.
- Deduct expenses and any eligible deductions to get your adjusted gross income (AGI).
- Determine your income tax bracket rate.
- Multiply your AGI by your tax rate to determine your income tax.
- To calculate your taxable income for self-employment taxes, multiply your AGI by 92.35%.
- Next, multiply this number by 15.3%. It is the combination of Social Security tax (12.4%) and Medicare (2.9%).
- Add your estimated income tax owed and your estimated self-employment tax owed. To estimate your quarterly taxes, divide this number by 4.
When are estimated quarterly taxes due?
In 2024, estimated quarterly taxes are due on the following dates:
- April 15, 2024
- June 17, 2024
- September 16, 2024
- January 15, 2025
How do you pay estimated taxes?
You can send your estimated tax payments and payment voucher to the IRS by mail, or you can use one of the following electronic payment methods:
- An online IRS account (no fees, can be transferred from your checking or savings account)
- The IRS2Go app
- IRS direct pay online
- The U.S. Treasury’s Electronic Federal Tax Payment System
- Debit or credit card
- Electronic fund withdrawal when you e-file
Estimated quarterly taxes are due for any earnings that are not subject to federal tax withholding. Freelancers, independent contractors, sole proprietors, and partners are expected to pay quarterly taxes, but so are people who have realized capital gains, won prizes, earned dividends, or any other wage or non-wage earnings that do not already have taxes withheld.
If you are a U.S. citizen or resident alien who did not owe any taxes for the previous full tax year and you have no untaxed income, then you do not need to pay estimated quarterly taxes.
There is no one-size-fits-all guide to investment and business strategy. Working with a wealth manager who uses a fee-only financial planning structure can ensure you make the best financial decisions for yourself and your loved ones. Ready to secure your financial future? Call us today at 866-395-1786 to get started.
