What are quarterly tax payments?
Quarterly tax payments are exactly what the name suggests — four individual tax deadlines throughout the year. Income for each fiscal quarter is taxed at the end of the given period.
Luckily, like April’s tax deadline, quarterly tax payments are due in the middle of the month. Though exact due dates can vary from year to year, the general time frame remains unchanged. Quarterly tax payments for the 2019 fiscal year are due at the following times:
- Taxes on income earned between January 1– March 31 are due on April 15
- Taxes on income earned between April 1– May 31 are due on June 17
- Taxes on income earned between June 1– August 31 are due on September 16
- Taxes on income earned between September 1– December 31 are due on January 15, 2020
Who has to pay quarterly taxes?
Don’t stress if you’re traditionally employed — if you have a W2 job, you don’t have to worry about quarterly tax payments. Quarterly taxes, sometimes referred to as estimated taxes, are only required for those legally classified as self-employed. This includes independent contractors and freelancers, a sole proprietor or anyone working in a trade field, a member of a business partnership (like an LLC), or anyone who owns a business of their own (yeah, your weekend side hustle counts).
For those in typical employment scenarios, taxes are automatically deducted from each paycheck. For the self-employed, though, each of their paychecks arrive in full. Sounds great, right? It’s not as cool as it sounds. Sure, taxes aren’t removed right away, but they still have to be paid.
Quarterly tax payments are designed to help these individuals keep up with what they owe. Because those who are self-employed have to set aside money for taxes on their own, it’s all too easy to fall behind. If you aren’t on your game and setting aside 30% of each of your payments, you’ll find yourself thousands of dollars in the hole and the IRS will soon come knocking on your door. Quarterly tax payments ease the burden by giving freelancers, contractors, and small business owners financial checkpoints throughout the year. Instead of paying tens of thousands in April, quarterly tax payments allow the self-employed to pay in smaller, easy-to-manage installments. It’s a whole lot easier to set aside money for 3 months than it is to set funds aside for the whole year.
Bad news, self-employed folks — you’re going to have to pay a self-employment tax, too. The SECA tax, officially titled the Self-Employment Contributions Act tax, is due alongside your quarterly tax payments. Doesn’t sound very fair, does it? Why pay additional fees just because you work for yourself? As bad as it may sound, SECA taxes aren’t actually a “just because” fee. In reality, this tax is just the freelancer equivalent of the Social Security and Medicare tax that traditional employees (and employers) already pay. Yes, it might seem like an extra payment, but it’s a tax you’ll pay one way or another no matter what job you have.
How do I pay quarterly taxes?
Quarterly estimated taxes might seem like a headache, but they aren’t as tricky as they sound. Some quick organization and some simple math are all it takes.
If you haven’t already (and seriously, you should be doing this regularly), organize your invoices and financial statements in chronological order. The method you choose is up to you. Spreadsheets work well. A designated folder on your laptop works, too. No matter what technique you choose, be sure that all of your financial documents are accounted for. Yes, even that minor $20 payment needs to be logged. The more accurately you can calculate your total income, the less likely you are to make a mistake and owe an even greater amount.
In order to file, you’ll need the official 1040-ES tax form for your given year. You can find the file on the IRS website and print it off, you can grab a copy from a professional tax service, or you can fill out the form 100% digitally. Before you add in any information, read each section carefully. If your requirements are unique for any reason, you’ll want to learn that information out before you send the form on its way. Don’t assume the process will be cut and dry.
Once you’ve finished reading the specifications, calculate your total income for each quarter following the tax schedule provided above. After you’ve finished, you’re ready to begin filling out your form. The sheer number of lines, boxes, and charts can be intimidating — luckily, the 1040-ES form provides detailed instructions that tell you how to fill out each section. You’ll be told where to write your estimated earnings, what percentages you’ll need to multiply that number by, and where to write the adjusted number. You’ll also be given a detailed chart that explains what percentage of your total income you’ll owe and what tax bracket you fall under. Be sure to fill out all the required sections and keep the designated pages for your future reference. Check, double-check, and check it again. When it comes to the IRS, you can never be too careful.
When you’re confident you’ve filled out the form correctly, you’re ready to submit. You’ll need to mail your form if you’ve filled out a physical copy. If you’ve filled out the 1040-ES online, all it takes is the press of a button. Now for the big stuff — payment. The IRS provides multiple payment options so that you can pick the one that’s most convenient for you. You can make direct transfers with IRS Direct Pay, you can pay by card, you can pay with a personal check, you can pay via an Electronic Fund Withdrawal, and you can even pay by phone. Once you’ve paid, wait for official confirmation and update your records when confirmation arrives.
The bottom line
Quarterly taxes are a necessary evil for the self-employed. Taxes are never fun, but they don’t have to be a headache. As long as you’re organized, timely, and good at following directions, making proper payments will be a breeze.