When you are an employee of someone, it’s your employer’s responsibility to ensure that federal and state taxes are being withheld from your paychecks. On the other hand, this responsibility falls to you if you’re self-employed, or operate a business as a sole proprietor or partner, or are a pass-through corporation shareholder. For individuals who have incorporated their business and expect their tax burden to exceed $500 by the year’s end, or for those filing as a sole proprietor or partnership who expect their tax burden to exceed $1,000 by the year’s end, the IRS mandates estimated quarterly tax payments.
Estimated taxes refers to the amount taxpayers are responsible for paying on earnings that aren’t subject to withholding. This includes income not only from self-employment but other sources as well, such as rent, alimony, dividends, and awarded money.
One of the more costly misconceptions often held by those who are self-employed is that they can pay their taxes at the end of the year in one lump sum. In reality, failing to pay estimated quarterly taxes by the due dates may result in penalties and interest.
Deadlines for estimated quarterly taxes are as follows:
If any of these dates fall on a weekend or holiday, the deadline is moved to the following workday. Now, if you’re looking at these dates and thinking, “Wait a minute, those are not uniform three-month increments: there’s only two months between the April and June deadlines, and four months between the September and January deadlines,” you are correct. In this sense, “quarterly taxes” is somewhat of a misnomer.
Another misconception is that if the quarterly payment due date is missed that the best course of action is to combine the now-delinquent payment with the pending quarter’s payment at the next deadline. Instead, taxpayers who miss the quarterly deadline should send payment as soon as possible, appealing any penalties. (The IRS, being less concerned with collecting penalties and more concerned with collecting taxes, can be fairly forgiving.)
If you’re self employed, remember that you’re responsible for paying not only federal income tax but also a 15.3 percent self-employment tax that covers the amount an employer would withhold for Social Security and Medicare. Remember too that state taxes must be factored into your tax equation.
Estimated payments should be sent with an IRS Form 1040-ES. For more on where to send this, please see our where to file instructions here .