What Exactly Are Quarterly Taxes?
Depending on how much self-employed income you earn, you could have not one, but four “Tax Days” during the year. Bummer.
Quarterly taxes are divided into two categories:
- Self-employment tax: This 15.3% tax is made up of both the employee and employer portions of the Medicare and Social Security taxes. When you’re a salaried employee, your employer will split the cost of those taxes with you. But when you’re in business for yourself, you’re responsible for the whole thing.
- Income tax: You’ll pay taxes on your income at your income tax rate, just like everyone else.
Your tax bill can add up pretty quickly, so you should set aside 25–30% of every paycheck for taxes if you’re self-employed. You don’t want to get blindsided by a huge tax bill. Ever seen a quarterback looking to pass and then getting crushed by a lineman? That’s what a surprise tax bill feels like.
Who Pays Quarterly Taxes?
Freelancers, independent contractors and small-business owners who expect to owe at least $1,000 in taxes from their self-employed income are required by the IRS to make estimated tax payments.
If you owe less than $1,000, you can just pay your taxes on that income when you file your tax return at the end of the year.
Important: It doesn’t take long to rack up a $1,000 tax bill, so even a side hustle could complicate your tax situation. If you have a regular job and don’t want to mess with quarterly payments, you can increase your withholding at your job to offset taxes earned from your side hustle.
Reach out to a tax professional if you need help figuring out whether or not you’ll need to pay quarterly taxes. If you wind up owing a significant amount of taxes and didn’t pay quarterly, you may have to pay an underpayment penalty on top of the taxes you owe. So don’t overlook this!
When Are Quarterly Taxes Due?
If you’re one of the many Americans who need to file quarterly, circle these deadlines on your calendar or set reminders on your phone so you don’t forget to pay on time! Being late on a payment means you’ll be hit with interest and late payment penalties each month that could go as high as 25% of your unpaid taxes.
Quarterly deadlines are April 15, June 15, September 15 and January 15 unless those days fall on a weekend or holiday. Then the deadline moves to the next business day. Source