A Guide to Paying Quarterly Taxes
Self-employed taxpayers likely need to pay quarterly tax payments and meet key IRS deadlines. Here’s a closer look at how quarterly taxes work and what you need to know when filing your tax returns.
Key Takeaways
- If you work as an independent contractor, a sole proprietor, a member of a partnership that conducts business, or a person who otherwise runs a business as your own, you likely need to pay quarterly estimated taxes.
- Quarterly taxes have self-employment taxes (Social Security and Medicare) and income tax. The income tax is on the profits of your business and other income.
- If your income drops during the year, or if it increases, you can adjust your quarterly payments.
- You can pay your quarterly taxes online. Use the Electronic Federal Tax Payment System. Or, you can pay them using paper forms from the IRS.
When a significant natural disaster hits – such as a hurricane, earthquake, tornado, flood, wildfire, blizzard, or the like – the IRS will extend upcoming federal tax deadlines for affected taxpayers if a federal disaster is declared. The extended due dates apply to most federal tax returns and payments, including those for income taxes (including estimated tax payments), payroll taxes, and excise taxes. If you’re impacted by a natural disaster, check our IRS Disaster Relief page to see if you qualify for an automatic tax filing or payment extension.
Estimated tax payments
Working for yourself has many benefits. You never have to report to a boss and can set your own hours. It also has a few added tax requirements. You have to pay taxes quarterly instead of with each paycheck as a W-2 employee would.
Keep reading to learn answers to questions like, "Who has to pay quarterly taxes?" "When are quarterly taxes due?" and "How do I pay quarterly taxes?"
Who is required to file quarterly taxes?
If you work as a self-employed individual or small business owner, you likely need to pay quarterly estimated taxes. You're typically considered self-employed if you work as any of these:
- independent contractor
- sole proprietor
- member of a partnership such as an LLC that receives guaranteed payments
- person who runs a business as your own, including part-time
Who should pay estimated taxes?
The IRS uses a pay-as-you-go income tax system, meaning you must pay your taxes as you earn income. It enforces this by charging penalties for underpayment. You get them if you haven't paid enough income taxes through withholding or making quarterly payments. It also charges penalties on late payments even if you end up getting a refund.
The IRS uses a couple of rules to determine if you need to make quarterly estimated tax payments:
- You expect to owe more than $1,000 after subtracting withholding and tax credits when filing your return, or
- You expect your withholding and tax credits to be less than:
- 90% of your estimated tax liability for the current tax year
- 100% of the previous year's tax liability, assuming it covers all 12 months of the calendar year
These are commonly referred to as safe harbor rules. The 100% requirement increases to 110% if your adjusted gross income exceeds $150,000 ($75,000, if you're married and file separately).
One exception applies to individuals who earn at least two-thirds of their income from farming or fishing. The requirement is to pay in two-thirds of your current year tax or 100% of your prior year tax. Also, there is only one estimated tax payment date - January 15 of the following year. Additionally, if you file and pay in full by March 1, then estimated tax payments are not required.
Paying your taxes quarterly can avoid the cash crunch you might face come tax time. Paying in quarterly installments can make paying easier than one lump sum. This is especially true if you've underestimated your taxes.
TurboTax Tip:
When you file your annual tax return, you can apply any overpayment from the previous year to your estimated payments for the current year.
What taxes do self-employed people pay?
As a self-employed individual, you file an annual tax return but typically pay estimated taxes every quarter. Quarterly taxes generally include two categories:
- self-employment tax (Social Security and Medicare)
- income tax on the profits that your business made and any other income
For example, in the 2024 tax year:
- The self-employment tax rate on net income up to $168,600 is 15.3%. That breaks down to 12.4% Social Security tax and 2.9% Medicare tax. As your income increases past this amount, the 2.9% Medicare tax continues but the Social Security portion stops.
- High earners — generally, individuals with earned income of $200,000 and above or married couples with incomes of $250,000 or more — are subject to an additional Medicare tax of 0.9%.
To estimate your taxable income as a business owner:
- Take your expected annual gross income. This is the total revenue you received. Deduct expenses and any eligible deductions. For example, say your annual revenue was $100,000. If you had business deductions totaling $30,000, your taxable income is $70,000.
- $100,000 - $30,000 = $70,000 taxable income
- The IRS provides a full listing and reference guide for small business owners. IRS Form 1040-ES is a worksheet that takes you through that calculation and helps you determine your taxable income and payments.
- Once you have an estimate for your yearly taxes, divide that number by four. Pay your quarterly taxes by their due dates.
If your income or expenses change a lot during the year, that may affect the taxes you need to pay each quarter. For example:
- If your company loses a big customer, your income drops. So, you can adjust your payments.
- If you land a major contract that boosts your income, check the worksheet again. Make sure you're paying the right amounts.
What is the qualified business income deduction?
You may have a chance to cut your self-employment income. You can do this by claiming the QBI deduction. This lets you cut your pass-through income from self-employment or owning a small business by up to 20%. You can do this on your tax return.
You can reduce the net amount of qualified items of income, gains, deductions, and losses tied to your trade or business. This means items like capital gains and losses, dividends, interest income, and other nonbusiness gains and losses don't figure into this calculation.
In general, to claim the QBI deduction, your taxable income must fall below $182,100 for single filers or $364,200 for joint filers in 2023. Tax year 2024 has limits of $191,950 and $383,900, respectively.
First, you find your self-employment or business income. Then, you report it on Form 1040 after subtracting deductions. From there, you can calculate this pass-through deduction.
When are quarterly taxes due for 2024 and 2025?
To avoid an Underpayment of Estimated Tax penalty, be sure to make your payments on time for tax year 2024:
- 1st Quarterly Estimated Tax Payment April 15, 2024
- 2nd Quarterly Estimated Tax Payment June 17, 2024
- 3rd Quarterly Estimated Tax Payment September 16, 2024
- 4th Quarterly Estimated Tax Payment January 15, 2025 (or you can file your tax return by March 1, 2024, with your full remaining payment and not submit this quarterly payment)
For tax year 2024, the following payment dates apply for avoiding penalties:
- 1st Quarterly Estimated Tax Payment April 15, 2025
- 2nd Quarterly Estimated Tax Payment June 16, 2025
- 3rd Quarterly Estimated Tax Payment September 15, 2025
- 4th Quarterly Estimated Tax Payment January 15, 2026
How to pay quarterly taxes
Once you've calculated your quarterly payments,
- You can submit them online through the Electronic Federal Tax Payment System.
- You can also pay using paper forms supplied by the IRS.
- When you file your annual tax return, you'll pay the balance of taxes that weren't covered by your quarterly payments.
You have other options as well when you show an overpayment of tax after completing Form 1040 or 1040-SR. You can apply all or part of your overpayment to your estimated tax for this year. You can do this instead of getting a refund.
Consider this amount when estimating your tax payments for the current tax year. You can treat the overpayment as a payment on your April taxes. It's for the first quarter of this year.
You can use your new total annual income to estimate your quarterly payments for the next tax year. You can also use software like QuickBooks Self-Employed to track your income, expenses, and deductions. This will help with estimating your quarterly payments.
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