Your income may be subject to different taxes if you work from home as a freelancer or run a storefront. If you’re self-employed or make most of your money that way, you may find yourself paying taxes more often than in April. Your taxes will be due quarterly instead of annually on September 15.
Quarterly taxes are based on your expected year-end tax liability. They can be handy if you obtain money from non-standard sources, such as investment interest, or if your job doesn’t automatically deduct taxes. Like any tax, there are a few details to remember to accurately forecast and pay quarterly taxes. Great resource for learning the basics.
What about quarterly taxes?
You are required to pay your taxes four times a year, or quarterly. Those whose paychecks do not include taxes should use them. The government simplifies the process of collecting taxes from employees by automatically deducting Social Security, income, and other taxes from their paychecks when they receive W-2s at the end of the year. Businesses that compensate you for services rendered throughout the year will send you a Form 1099, even if you are not an employee of those companies. According to the information on your 1099 forms, it is your responsibility to determine and pay your own taxes if you are self-employed. We did not deduct any amount from your paychecks to pay taxes.
Many people mistakenly believe that they only need to pay taxes once a year, during tax season. After receiving a paycheck, the majority of taxpayers actually pay their taxes. During tax season, filing is primarily about reconciling your finances. If you overpaid your taxes this year, the IRS will reimburse you; if you underpaid, you must pay.
Even if you’re self-employed and don’t have your paychecks withheld, the federal government still requires you to pay taxes as you receive income. The situation remains the same for those in traditional employment. Actually, it’s just a little different-looking. Rather than setting aside a certain amount from every paycheck, you will be required to pay taxes every three months.
Taxes are due every three months, or quarter. January–March, April–May, June–August, and September–December are the periods in question. Taxes are due on the 15th of the first month following the conclusion of each quarter. Your tax obligations for the prior year will be due on these dates.
Who has to pay taxes each quarter?
Quarterly tax payments are typically required for earnings that are not automatically taxed throughout the year. For tax purposes, income includes more than just wages. A household’s income might come from a variety of sources, including wages, prizes, and capital gains, among many others.
It is highly unlikely that your earnings as a self-employed individual will be subject to taxation at any point throughout the year without a formal payroll system in place to withhold taxes from your profits. Every quarter, you must pay your taxes if you anticipate having a balance of $1,000 or more when the time comes. You probably won’t have to pay taxes every three months if your side hustle of resale only brought in $500 last year. You are required to pay taxes every three months if you are a plumber who works as a sole proprietor and earns $100,000 a year (without withholding income taxes from your paycheck).
Some individuals wonder, “Why don’t I simply pay my taxes at the end of the year?” Penalties apply to taxes paid after the due date. If you wait until the end of the year to pay your quarterly tax obligations, you risk incurring penalties for four late payments.
You might be able to change your withholding so that you don’t have to pay taxes every quarter. For any job that deducts taxes from your paycheck, you are required to complete a W-4 form annually. You can enter extra withholdings in the designated box on the form. The amount you enter here will determine the withholding amount from each paycheck, in addition to any taxes you would owe. You can use the Internal Revenue Service’s Tax Withholding Estimator tool to determine the appropriate amount to deduct from each paycheck.
Methods for Scheduling Quarterly Tax Payments
Each quarter, you must file your taxes using Form 1040-ES. Make sure to do so by the due date. To help you estimate your quarterly tax liability, this form includes a worksheet. You should use your first year’s expectations to determine your quarterly tax obligations. After the first year, your earnings from the previous year will serve as the basis for your estimations.
At the end of each quarter, you’ll have paid your estimated tax bill. The Internal Revenue Service accepts payments made by mail that include a tax voucher and a check. There are enough vouchers for the year, as well as mailing instructions on Form 1040-ES. Online payment using the IRS’s EFTPS system is also a popular choice. Creating a profile is necessary for using the system. Make sure to set up your account well in advance of the payment deadline, because the IRS will send you a code as part of the account creation process.
When the year comes to a close, you submit your tax return along with all of your final numbers. Tax refunds are available if you thought you owed more. The Internal Revenue Service will penalize you if you fail to account for all of your tax obligations.
Despite being estimated, quarterly taxes are mandatory. The filing of Form 1040-ES is mandatory even if you are in financial hardship and cannot pay your quarterly taxes. You can then work out a payment schedule with the IRS. You have the option to ask for a deadline extension if you anticipate being able to pay promptly. If you can’t pay your taxes all at once, the IRS has payment plans available.
Accurately calculating your tax liability requires familiarity with the quarterly deadlines and the Form 1040-ES worksheet. Your chances of having a sizable debt when you submit your yearly tax return go down when you make your estimations as precise as possible. Hiring a tax expert to assist you with your quarterly returns is a smart move if your income situation is complex.
