If you are self-employed as a freelancer, small business owner or gig worker, or if you earn income from any non-wage source, it’s highly likely that you are responsible for quarterly estimated tax payments.

What Are Estimated Tax Payments?

Estimated tax payments are payments made to the Internal Revenue Service (IRS) on a quarterly basis, instead of once per year. The idea is that those who don’t have their taxes automatically withheld from their earnings throughout the year are responsible for manually making payments to the IRS.

Estimated taxes are due in January, April, June, and September. However, taxpayers have the option of making estimated tax payments as often as they want; some may prefer to pay monthly, especially if their income fluctuates throughout the year. Staying on top of these payments is important because underpaying throughout the year can lead to penalties and interest owed when you file your annual return. 

Who Is Required to Make Estimated Tax Payments?

Generally, anyone who has earnings that are not automatically taxed is required to make estimated tax payments throughout the year. This includes freelancers, independent contractors, and gig workers. It also includes those who earn money from non-wage sources, such as rental properties or dividends.

In a “traditional” job where you receive a pay stub and a W-2, taxes for Social Security, Medicare and other expenses are automatically deducted from your paycheck before you receive it. When you’re self-employed, this doesn’t occur, so you become responsible for making those deductions and payments directly to the IRS.

There are some exceptions. If your total tax liability for the year is under $1,000, you are not required to make estimated tax payments. The same applies to earnings for farmers and fishermen, who are exempt from paying quarterly taxes. If you live in an area that has been declared a disaster/emergency area in the past year, there is also a chance that the IRS will postpone your estimated tax payment deadlines. 

How to Make Estimated Tax Payments

If you need to make estimated tax payments for the first time, there are a few things you should know. For starters, you’ll need to stay on top of the quarterly due dates throughout the year.

You can make an estimated tax payment by mail or online through the Electronic Federal Tax Payment System (EFTPS). You’ll need to set up an account and link your bank account, which can take some time—so be sure to set aside enough time before your first due date to avoid delays.

Once you set up your account, you can schedule an estimated tax payment based on your taxes owed. Determining how much to set aside and pay in estimated taxes can be difficult, but there are some helpful (and free) online calculators that can help you determine how much you owe based on your earnings and other factors. If you aren’t doing so already, now is a good time to start tracking every penny you earn for accurate reporting.

Keep in mind, too, that you may also be required to pay estimated taxes to your state government as well. If this is the case, you’ll need to find out the specific procedures for paying estimated state taxes. Typically, you’ll need to set up a separate account through your state government to make these payments. 

Penalties for Underpayment

It’s important to ensure that you calculate your taxes owed accurately and make your estimated payments on time. Failing to pay your estimated taxes or making an underpayment could result in hefty fines and penalties, as well as owing additional interest on funds unpaid. 

Corrigan Krause Can Help Individual Taxpayers and Business Owners

If you are self-employed and are wondering how you can make tax season run as smoothly as possible for your business’s success, the Tax team at Corrigan Krause can help. Corrigan Krause can provide you with the right guidance to avoid unnecessary penalties and build a system that makes estimated tax payments far more manageable moving forward. If you have any questions or would like additional information, click here to learn more about becoming a client.