Filing Quarterly Taxes As An Independent Contractor – Kristin Meador is a Certified Public Accountant with over 5 years of experience working with small business owners and freelancers in the areas of taxation, auditing, financial statements and profit planning. She’s not hiking the Smoky Mountains or checking out new breweries (@travelingcpachick), but she’s working on building her own financial services company. Christine is a lawyer and partner with Keeper Tax.
If you’re self-employed, a sole proprietor, an independent contractor, or self-employed, your taxes look very different than those of an employee. For one thing, you have to pay quarterly estimated taxes.
Filing Quarterly Taxes As An Independent Contractor
If you’re wondering how to file your quarterly taxes, you’ve come to the right place. Getting paid really doesn’t have to be stressful and can be done in about 15 minutes.
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Think of quarterly taxes as a plus – a way to pay your tax bill gradually throughout the year instead of in one (painful) lump sum.
Our tax system is a pay-as-you-earn system – taxes must be paid as you earn income during the year. After all, the government wants stable revenue. Therefore, taxes are paid through withholding (for W-2 employees) and quarterly payments (for self-employed taxpayers).
If you work for yourself, income tax is not automatically withheld from your wages. For this reason, the IRS instead uses quarterly tax payments to collect what it owes.
You can think of estimated tax payments as a form of self-employment withholding. When you first start figuring out how much tax you expect to pay, like with our 1099 tax calculator, you may be in for a bit of a surprise. But if you make your payments quarterly, you won’t be delinquent in April.
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There’s another big advantage to paying quarterly: you won’t be penalized. More on that later!
Most freelancers or independent contractors are required to pay quarterly estimated taxes. This is especially true if your freelance income is your only source of income.
What does it mean to have no tax liability? Either your “total tax” on Form 1040 was $0, or you don’t need to file an income tax return at all. (This rarely happens unless your income is very low.)
You must meet two additional requirements: You must be a US citizen and your previous tax year must be a 12-month tax year.
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If you have a regular job and the freelance work is a side gig, you can avoid paying the quarterly fee by asking your employer to withhold a small allowance from your income. This applies even if your spouse has a W-2 job and you file jointly.
Checking your withholding will make sure the amount you owe is less than $1,000. That way you won’t be penalized for underpayments.
To claim the extra cash, you must fill out a new W-4 form. Enter your expected net income from self-employment or outside employment in the “Other Income” line. You can also use the IRS Tax Withholding Planner tool to fill out the form.
This is where Keeper can help you with our free quarterly tax calculator. Just enter your state, your expected monthly self-employment income, and your spouse’s information.
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From there, our tool will tell you when your next payment is due and how much you owe to both the IRS and your state.
Estimating your freelance income can be difficult. Because if you are self-employed, your taxable income may fluctuate from year to year. But there is no reason to worry. You’re not expected to do everything right – that’s why it’s called estimated tax payments!
The IRS also offers a 10% buffer to debt collectors quarterly if they’re slightly off the mark. Remember that it is safer to overestimate something than to underestimate it. If you overpay on your quarterly tax payments, you’ll get the extra money back as a tax refund.
If your income fluctuates significantly from month to month, you can also use the so-called annual rate method to account for this. This system allows people with fluctuating incomes to make quarterly tax payments of different amounts depending on how much they earn at different times of the year. To know how it works, read our article on the annual installment method.
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Note that three annual payments are made in a single calendar year, but the final payment is due in January of the following year.
For quick reference, feel free to download our self-employment tax calendar guide. A printable option is also available.
It is important to pay within the time frame mentioned above. Otherwise there may be a penalty shootout.
Quarterly tax penalties include both the accumulated monthly percentage and monthly interest. As a rule of thumb, that’s about 7% of the taxes you owe at the end of the year.
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One important detail you should keep in mind: Every month you miss a payment, the penalty increases. This means you should pay as quickly as possible.
For example, if you miss your scheduled tax payment deadline in April, you should double your payment in June to avoid the six-month penalty.
If you’ve determined that you’re on track with your quarterly taxes this year, you have several options for paying your quarterly federal taxes.
One way to handle quarterly taxes: File electronically with IRS Direct Pay. You can use this portal to pay taxes directly from your checking account. No paperwork or tax forms need to be submitted with your payment and you don’t need to register to use it. So, this option is faster. This usually happens in about 15 minutes.
Estimated Tax Payments
You have another option for electronic payment: the Electronic Federal Tax Payment System (EFTPS), which requires a fairly lengthy registration process. The IRS will mail you the account information, so it may take about a week.
If you’re lucky enough to live in a state with no income tax, congratulations! You are done. Otherwise you still have to pay your state as well. While government payment gateways are all different, they are similar to EFTPS. In most cases, you create an account online, verify your identity, and pay.
When you file your taxes with Keeper, we’ll take you to the appropriate page where you can make your quarterly payments.
You can also pay your quarterly taxes by check or money order. You must fill out a deposit slip and send it to the U.S. along with your check. To be mailed to the Treasury.
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Certification and shipping instructions can be found on Form 1040-ES. Note that Form 1040-ES is a worksheet for calculating your quarterly estimated taxes. (Accountants and tax preparers, for example, sometimes use it to determine how much their clients owe them.) This is the only use for the form—you don’t need to file it with your quarterly tax payments.
If you’re a little old school and prefer to pay your government payments by check, you always have that option as well.
After making the payment, be sure to keep a record showing the date and amount of the payment. You will need this information to file your taxes.
Don’t worry if you forgot to mention how much you’ve already paid! You can verify this information by requesting a copy from the IRS.
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Once you’ve written down your payment details, you can officially stop worrying about your quarterly taxes. Think of it this way: Maybe you saved yourself thousands in fines, and that’s worth celebrating.
If you are self-employed and expect to pay more than $1,000 in taxes, you must pay taxes in four quarterly installments throughout the year.
While W-2 employees have income tax withheld from each paycheck, this is not the case for freelancers or independent contractors. Quarterly tax is an independent form of paying tax throughout the year.
From hiring an accountant to sending a check in the mail, there are many ways to pay your quarterly taxes. There are two main methods:
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To calculate your quarterly taxes, add up the income tax, self-employment tax, and other taxes you owe, then divide the result by four.
To make things easier, you can use a quarterly tax calculator to estimate what you should pay each quarter.
Remember that quarterly taxes are estimates. The IRS does not expect you to set your payments at a certain percentage. However, it is assumed that you will pay the estimated amount. For this reason it offers a buffer of 10%
However, it is always better to pay more if you are not sure. If you pay more, you’ll get the extra amount back as a tax refund. If you pay more than 10% less, you will face a penalty.
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The January deadline ends in the next year of the three due dates. For example, you pay your first three quarterly taxes for 2024 in April, June and September 2025 and the fourth installment in January 2026.
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