Do I Need to Make Estimated Tax Payments on My Self-Employment Income?

One common question many self-employed individuals ask is whether they need to make estimated tax payments. The short answer: most likely, yes.

Who Needs to Pay Estimated Taxes?

If you expect to owe $1,000 or more in tax for the year after subtracting withholding and credits, the IRS generally requires you to make estimated tax payments. This commonly applies to:

- Freelancers and independent contractors - Small business owners - Gig economy workers - Individuals with significant investment income - Rental property owners

When Are Payments Due?

Estimated tax payments are due quarterly: - Q1: April 15 - Q2: June 15 - Q3: September 15 - Q4: January 15 (of the following year)

How to Calculate Your Payments

You can use IRS Form 1040-ES to estimate your tax liability. The safe harbor rule allows you to avoid penalties by paying either 100% of last year's tax liability (110% if AGI exceeds $150,000) or 90% of the current year's expected tax.

Penalties for Underpayment

Failing to make adequate estimated payments can result in an underpayment penalty. The penalty is calculated based on the amount underpaid and the period of underpayment.

Let Us Help

Calculating estimated tax payments can be tricky, especially with fluctuating self-employment income. At EverydayCPA, we help self-employed professionals stay on top of their tax obligations and avoid costly penalties.