Quarterly taxes without the panic
When you work for yourself, no one withholds tax from your pay. Instead, you send the IRS estimated payments four times a year. Skipping them does not make the tax go away. It just shows up all at once, sometimes with a penalty.
Who needs to pay
Generally, you should make estimated payments if you expect to owe $1,000 or more for the year after subtracting any withholding and credits. Booth and suite renters usually fall in this group.
The due dates
| Income earned | Payment due |
|---|---|
| January 1 to March 31 | April 15 |
| April 1 to May 31 | June 15 |
| June 1 to August 31 | September 15 |
| September 1 to December 31 | January 15 of the next year |
When a date lands on a weekend or holiday, it moves to the next business day. Many states also expect their own estimated payments, so check with your state tax agency.
How much to pay
The IRS has "safe harbor" rules that protect you from the underpayment penalty. In general, you are safe if your payments add up to at least:
- 90% of this year's tax, or
- 100% of last year's tax (110% if last year's adjusted gross income was over $150,000).
Using last year's tax is the simplest, because you can divide it by four and know your number in advance.
How much to set aside
Self-employment tax alone is about 14% of your profit, and income tax comes on top of it. Many self-employed people set aside roughly 25 to 30 percent of their profit. Your number depends on your income, filing status, and deductions.
Open a separate savings account called "Taxes." Each week, move your set-aside percentage from your business account. When a due date arrives, the money is already there. Try the set-aside tool.
How to pay
You can pay online with IRS Direct Pay or through your IRS online account, or by mail with a payment voucher. Keep a record of every payment.
If you fall behind
Paying something each quarter is better than paying nothing. The penalty works like interest on the amount you underpaid, for the time it was late.
This is general education, not tax or legal advice. Rules change and every situation is different. A licensed tax professional can tell you what applies to you.
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