How to Pay Taxes Quarterly While Self-Employed
The Gist:
Instead of paying taxes in full all at once on tax day, self-employed individuals can make estimated quarterly tax payments throughout the year. This is also known as “quarterly taxes” or “estimated payments.”
If you're self-employed and turning a profit, you likely owe quarterly taxes. However, if you've already paid 90% of your estimated tax for the current year or 100% of the previous year's tax, you may qualify for some exemptions.
You can use Form 1040-ES to calculate and estimate your quarterly tax. Base your calculations on your expected adjusted gross income (AGI) and divide the total owed tax by four for each quarter's payment.
After submitting, choose a payment method. Standard methods are via the IRS website or a mail-in check.
If you owe more than $1,000 and don't pay quarterly, you risk an underpayment penalty unless you qualify for specific waivers.
Be aware of the four main quarterly tax deadlines throughout the year to avoid late penalties.
In this Article:
In Short:
Navigating the world of quarterly taxes can be daunting for the self-employed, but using the right resources can help instill greater confidence as the year progresses. This guide breaks down the essentials in preparing for taxes as a self-employed individual. Understanding what quarterly taxes are, determining if you owe them, calculating the amount, and making timely payments are covered in this guide.
Remember, while traditional employees have taxes withheld, self-employed individuals must be proactive in their tax responsibilities. Stay informed, use tools like the Stride app for tracking, and always be aware of the quarterly deadlines to ensure you're in good standing with the IRS.
If you are self-employed, the words “quarterly taxes” and “estimated payments” likely send a shiver down your spine. Not to worry! We've created the ultimate guide to quarterly taxes to make estimated payments a breeze and address those questions of “how to pay taxes quarterly” and “how to file quarterly taxes?”
In this guide, you'll learn what paying taxes quarterly mean to you, how to determine if you should pay quarterly taxes, and how to pay them if you do. If you find this content helpful, try the Stride app, which makes it easy to record tax-deductible expenses and mileage year-round.
What Are Quarterly Taxes?
Quarterly taxes are estimated tax payments to the IRS made throughout the year (instead of all at once on Tax Day in April). These payments are based on an estimation of your income for the current year. Most people use their previous year’s taxes as a guide.
Everyone is required to pay taxes. If you’re self-employed or work for the man, your taxes are paid in one of two ways:
Withholding taxes from your paycheck (W-2 workers)
Paying taxes quarterly (1099 workers)
Traditional (W-2) employees usually don't owe quarterly taxes because taxes are withheld from their pay. However, if you are self-employed (ie: real estate agents, Uber drivers, or any freelancers or contractors), taxes are not withheld from your pay. That's right — you are responsible for paying taxes on your own.
How Do I Know If I Owe Quarterly Taxes?
If you are self-employed and turning a profit, you probably owe quarterly taxes.
However, it’s possible that you’re already paying enough in taxes during the year. For example, if you have a W-2 full-time or part-time job where your taxes are already being withheld for you and you typically get a tax refund, you may not need to pay quarterly taxes.
Alternatively, you do not need to pay quarterly if you have already paid at least:
90 percent of your estimated tax owed for the current year
OR
100 percent of the tax amount owed shown on your return for the prior year
In this case, your tax liability is already almost completely covered. Keep in mind, this is most common for people who have received a refund for the previous year’s tax and use that to pay their upcoming year’s taxes. For example, if you received a refund on your 2021 taxes in April and elected to pay it toward your 2022 taxes, you may be covered for estimated taxes, but only if that refund equals 90 percent of your expected 2022 taxes or was equal to 100 percent of your 2021 taxes owed.
What If I Didn't Earn That Much?
Even if you only earned a little, you may still need to pay quarterly taxes. If you expect to owe $1,000 or more in taxes for the year (after deduction and credits), the IRS expects you to make quarterly tax payments on your business profit for that tax year. As a reminder, you are making a profit if your self-employment income is higher than your business deductions.
Put simply: If you have income that didn't have taxes withheld and you expect to owe $1,000 or more in taxes on all of that combined income in April, then you should consider paying quarterly taxes.
How to File Quarterly Taxes and Payment Methods
You will need to file Form 1040-ES to file quarterly taxes. You can either file this form by hand, or use a tax filing software such as TurboTax and TaxAct to help you calculate what you owe. Wondering how Form 1040ES and Form 1040 differ? Form 1040 is used to report estimated tax, while Form 1040 is used to report your actual income. Here are the three steps you'll want to follow when paying taxes quarterly:
Step 1: Calculate what you owe.
Form 1040-ES will ask you to use your expected adjusted gross income (AGI) to estimate your owed tax. If you expect to earn a similar amount to last year, your AGI from last year is a good starting point to determine what you will make in the upcoming year. Adjust it up or down, depending on how much you expect to make this year. You are shooting for a ballpark estimate.
Once you have your expected adjusted gross income, run your AGI through the appropriate tax rate schedule to find your owed tax, and then divide your owed tax by four to find what you owe for each quarter.
When you are calculating what you owe each quarter, keep in mind that you need to pay 25 percent of the total that you expect to owe in a year instead of estimating what you’ll owe in each quarter. This can be especially tricky for self-employed taxpayers with income that varies throughout the year.
Step 2: Mail in your Form 1040-ES. You can find the correct address on the IRS website.
Step 3: Choose a payment method. To address your question of “how to pay taxes quarterly,” after you’ve mailed in your Form 1040-ES, you can select a payment method on the IRS website or mail your check with your Form 1040-ES.
What Happens If I Don’t Pay Quarterly Taxes and Wait until April?
If you owe more than $1,000 in taxes and do not pay taxes quarterly, you’ll be hit with an underpayment penalty by the IRS. Ouch!
However, you may be able to avoid the penalty if you meet either of these qualifications:
You didn’t pay due to a disaster or an “unusual circumstance.”
You retired or became disabled during the tax year.
You can find out how to declare these waivers on page 2 of the instructions for Form 2210.
Quarterly Tax Deadlines
Taxes come with a bunch of important deadlines. The 2023 quarterly tax deadlines are:
Q1 Deadline: April 18, 2023
File estimated taxes for January 1 to March 31Q2 Deadline: June 15, 2023
File estimated taxes for April 1 to May 31Q3 Deadline: September 15, 2023
File estimated taxes for June 1 to August 31Q4 Deadline: January 15, 2024
File estimated taxes for September 1 to December 31
I Still Have Questions. How Do I Get Help?
Stride is here to help you with self-employment taxes so you can have more time to do the work you love.
Email us with questions on quarterly payments or any other questions you may have.