Who Pays? What Counts? When Is It Due? Estimated Taxes!

Jeremy Springer
3 days ago
3 min read

If you are self-employed, picking up contract work, or earning money outside a regular paycheck, taxes can sneak up on you fast. One of the biggest surprises for new business owners and freelancers is this: if no one is withholding taxes for you, the IRS usually expects you to pay in during the year, not all at once in April.

That is where quarterly estimated taxes come in.

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Estimated taxes are generally required for individual taxpayers who expect to owe at least $1,000 when they file their return. That often includes sole proprietors, independent contractors, individuals with high-yield investments, taxpayers who receive substantial royalty payments, those in the rental property business, partners in partnerships, and S-corporation shareholders who do not have enough tax withheld elsewhere. Estimated payments can cover both income tax and self-employment tax, which is why many self-employed taxpayers end up needing them.

Self-employment tax is the piece many people miss. In simple terms, it is how self-employed taxpayers pay into Social Security and Medicare. If your net earnings from self-employment are $400 or more, you usually must pay self-employment tax. This generally applies to people who are in business for themselves, including sole proprietors, independent contractors, many single-member LLC owners, and partners in a partnership.

This matters because even a side business can trigger a tax bill. You might think, “I only made a little extra on the side;” but if that income did not have taxes withheld, you may still need to plan for both income tax and self-employment tax. This is especially true for people doing consulting work, freelance design, delivery driving, online selling, or other gig work. The exact amount will depend on your profit, deductions, and any other income on your return; but the obligation often starts earlier than people expect.

The key due dates are straightforward, even if the system is not. For calendar-year taxpayers (which is most individual taxpayers), estimated tax payments are generally due on April 15th, June 15th, September 15th, and January 15th of the following year. If one of those dates falls on a weekend or legal holiday, the deadline moves to the next business day.

A quick note here: “quarterly” is the common term, but the payment periods are not evenly spaced which catches people off guard every year. The second payment comes up in June, not July, so it arrives sooner than many expect.

If you also earn wages from a job, there may be another option. Instead of sending quarterly payments, you may be able to increase withholding from your paycheck by updating Form W-4. For some taxpayers, that is the easiest way to stay current and avoid underpayment penalties.

What if you don't pay in estimated taxes when you should have? Penalties begin to apply if you wait until tax season to pay a large balance. In general, taxpayers can avoid an underpayment penalty if they owe less than $1,000 at filing, or if they paid enough during the year through withholding and estimated payments to meet one of the IRS safe-harbor rules.

The bottom line is simple: if you are earning income without tax withholding, do not wait until April to think about it. A little planning during the year usually costs less, feels better, and helps keep tax season from turning into a cash-flow problem.

Legal Disclaimer: This post contains general information for taxpayers and should not be relied upon as the only source of authority. Taxpayers should seek professional tax advice for more information. This information was current at time of posting; we are not responsible for updating this or any blog post/article for subsequent changes in the law or its interpretation.