It’s no secret that paying taxes can be pretty stressful, and possibly the least fun part of being an independent contractor. Of course, when you are self-employed, no taxes are withheld from your income, which is great when you get paid but requires a little extra work to stay on top of your tax bill. According to the IRS:
“Taxes are pay-as-you-go. This means that you need to pay most of your tax during the year, as you receive income, rather than paying at the end of the year.
There are two ways to pay tax:
- Withholding from your pay, your pension or certain government payments, such as Social Security.
- Making quarterly estimated tax payments during the year.
This will help you avoid a surprise tax bill when you file your return. You can also avoid interest or the Estimated Tax Penalty for paying too little tax during the year. Ordinarily, you can avoid this penalty by paying at least 90 percent of your tax during the year.” Source: IRS.gov
It’s important to understand what are quarterly tax payments, what they cover, and when to make these payments.1
What are quarterly tax payments?
Quarterly tax payments (a.k.a estimated taxes, estimated quarterly taxes, and estimated tax payments) are payments you make to the government over the course of the year, rather than once a year, if you are a self-employed worker. These payments involve estimating how much you will owe in taxes and paying “taxes-as-you-go.” Four times per year, you pay a quarter of your expected tax bill instead of a single payment at the end of the tax year.
The indi team also covered this topic in-depth in a previous blog post you can find here!
What do quarterly tax payments cover?
Quarterly tax payments cover two taxes, your self-employment tax (SE tax) and your income tax.
- Self-Employment Tax (SE tax): SE tax rolls your share of Social Security and Medicare tax into one amount. In 2021 the self-employment tax rate was 15.3% (12.4% Social Security tax and 2.9% Medicare tax). If you are a high earner, you may be subject to an additional Medicare tax.
- Income tax: Taxes on your income at your income tax rate, regardless of whether you’re a 1099 or W2 worker.
When to pay quarterly tax payments?
If you pay taxes quarterly these are the due dates.
|Payment Period||Due Date*|
|January 1 – March 31||April 15|
|April 1 – May 31||June 15|
|June 1 – August 31||September 15|
|September 1 – December 31||January 15 of the following year|
indi users receive reminders in the weeks leading up to these dates, as well as on the due date. Additionally, if you’d prefer to spread out the payments, you can pay more often than quarterly, but you just need to make sure that the payments you make add up to the total due for that quarter.
Quarterly tax payments can be complicated, but saving for quarterly tax payments, making payments regularly, and tracking expenses are critical to avoiding penalties, maximizing tax deductions, and maintaining financial health. When in doubt rely on trustworthy sources of information like the indi blog, IRS.gov, and tax professionals.
1. Please note that the above is provided on an informational basis and is not a substitute for individual tax planning or for legal, financial, or tax advice.