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Tax season is a freelancer’s least favorite time of year. What makes it even worse is that self-employed individuals must deal with four—that’s right— four tax seasons in a single year.
Who came up with that crazy idea?
The thing is, employees have their taxes withheld on their paychecks throughout the year. Self-employed freelancers, on the other hand, are not subjected to automatic tax withdrawal.
But the pied piper must be paid, which is why gig workers, solopreneurs, and all other forms of rockstar freelance business owners must cough up the government’s share of the profits every few months. And with the gig economy growing with each passing year, there are more freelancers than ever who need to know how to properly pay their taxes.
That’s why we’ve put together this guide to help you learn the fundamentals of paying your quarterly estimated taxes. In this article, you will learn if you have to pay quarterly taxes, how much you will owe, when these taxes have to be paid by, and how to pay them.
Do I have to Pay Quarterly Taxes?
Every self-employed individual who expects to owe $1,000 in federal taxes on their return at the end of the year needs to make quarterly estimated federal tax payments. Depending on the state you live in, you may need to make quarterly estimated tax payments to the state, too.
That’s the unfortunate truth, and if you’re taking your freelancing business seriously, that means you’re going to have to pony up for Uncle Sam.
If you don’t pay your quarterly estimated taxes, or if you make payments that are too small or too late, you’re likely to end up with a pile of fees come tax return season.
How Much Should I Pay?
Calculating and paying your quarterly taxes isn’t a black and white process. There’s some subjectivity and guesswork at play here which can make understanding the process even more troublesome.
Quarterly Estimated Federal Taxes
To start with, you will need to estimate your adjusted gross income for the year and subtract any expected deductions—you can base this off of what you recorded on your previous year’s federal income taxes and make slight adjustments based upon any forecasted changes in income or expenditures that come to mind. Then, you’ll need to identify your filing status.
As a freelancer, you are required to pay both your income tax and a self-employment tax.
Why? Because everyone who makes income is taxed on it—that’s the American way. And, as a self-employed individual, you also need to pay for your own Social Security and Medicare taxes. It’s a one-two gut punch, but the laws are in place for a reason.
Once you’ve got your yearly estimates in order, you’ll want to divide that number by four to get your quarterly estimated federal tax.
If this is beginning to sound too complicated, don’t worry—there are many others like you who would rather simplify their taxes, pay them, and be done with it. That’s why AND.CO created the handy dandy Quarterly Tax Calculator Bot to make your life a little easier. Go on, give it a whirl.
Quarterly Estimated State Taxes
Most U.S. states also require self-employed individuals to pay quarterly estimated state tax payments.
Each state has its own minimum earning requirements (of course!), its own filing stipulations and penalties (who would have guessed?), and its own deadlines and accepted payment methods (can nothing about the government ever be easy!?).
The best way to find out how much quarterly state tax you have to pay, and how you can pay it, is to visit your state’s department of revenue site.
When Do I Have to Pay My Estimated Quarterly Taxes?
While each year’s tax filing deadlines aren’t set in stone, they generally stay the same from year to year unless there is a major disruption (such as a pandemic) in which the government tends to extend the filing deadlines, rather than shorten them.
The quarterly estimated federal tax deadlines for 2021 are as follows:
- April 15th: Taxes due on earnings from January 1 to March 31.
- June 15th: Taxes due on earnings from April 1 to May 31.
- September 15th: Taxes due on earnings from June 1 to August 31.
- January 15th of 2022: Taxes due on earnings from September 1 to December 31.
As for the individual states, well, they generally follow these same due dates. There are some noteworthy exceptions though. You’ll want to check in with your state’s department of revenue to verify its specific requirements.
How Do I Pay My Estimated Quarterly Taxes?
The easiest and most direct way to pay your quarterly federal taxes is through the Internal Revenue Service’s own Direct Pay System. Using this online tool you can pay your taxes with a bank account, debit card, or credit card.
Paying through the IRS’ Direct Pay is completely free of charge with a direct bank transfer. There are minor, though transparent, fees that come with using a debit or credit card.
How Do I Plan Ahead for Future Quarterly Taxes?
The best way to plan ahead is to keep your business finances in order so that you can quickly see your income and expenses at a glance. You will generally want to keep 25% to 30% of your income set aside in a business savings account purely for paying your taxes.
Workspace smart invoicing app can automatically create invoices for you and alert you when they have been paid.
Similarly, Workspace expense tracking tool is a versatile and efficient way to keep tabs on all of your business purchases.
In conjunction, these tools automatically compile easy-to-read freelance business reports that display on-demand visual statistics about your business. By enabling these finance management tools to track your income and expenses, you will have all of the data you need at hand come tax time.
A great way to get started managing your finances and taxes is to use AND.CO’s free Quarterly Tax Calculator Bot. Then, once you’ve got this quarter’s taxes squared away, get a jump on the next round by downloading AND.CO’s freelancer tools.
Managing your business, and your taxes, just got a whole lot easier.