How To File Quarterly Taxes ⌚
PSA: Freelancer, self-employed workers, sole-proprietors, and independent contractor taxes are VERY different. You see, income taxes are NOT withheld from your paychecks or deposits. This fact can easily become a source of stress for many independent contractors when they hear the words “quarterly estimated taxes”. If you are questioning how to file quarterly taxes, you’ve come to the right place.
Paying your quarterly estimated taxes doesn’t have to be stressful! In fact -- you can look at it as a positive because the IRS isn’t holding onto your money from each paycheck. After you use our 1099 tax calculator, you might be surprised at how much you owe. Don't worry because quarterly tax payments will help you so you won't feel overwhelmed later. Taxes may not be the most exciting way to spend 15 minutes, but skipping means you’ll owe a big penalty at the end of the year. You can save your own money personally, and then pay it to the IRS quarterly in a lump sum.
Why Are Quarterly Estimated Tax Payments Required?
Our tax system is a “pay as you earn” system, meaning that taxes must be paid as you receive income during the year. The government wants steady income throughout the year and quarterly payments are a way to ensure that they are getting it. Therefore, taxes must be paid either through withholding or estimated tax payments.
However, as a freelancer or independent contractor, you don’t get income withheld from your payments. So when tax season rolls around, you do not get a tax refund. This often makes you liable to make quarterly payments on your taxable income. Before you stress eat that entire pint of ice cream, let’s talk through the mechanics of how to file quarterly taxes.
Who Should Pay Quarterly?
Most freelancers or independent contractors are required to pay quarterly estimated taxes. This is especially true if your freelancing income is your sole source of income.
There are some exceptions to the rule that can exempt you from paying quarterly taxes. However, this is where things can get confusing. So when in doubt, pay quarterly folks!
You are exempt from paying quarterly taxes if:
- You expect to owe less than $1,000 when you file your taxes, OR
- You had no tax liability for the prior year*
*Note: To have no tax liability would mean your “total tax” was $0 or you didn’t have to file an income tax return. This is rare unless you are a low-income individual or household. Along with this, you must have been a US citizen for the whole year and your last year's taxes must have been a 12-month period.
What if Freelancing is my Side Hustle?
If you have a traditional job and freelancing is a “side hustle”, you could likely be exempt from quarterly taxes by asking your employer to withhold more from your earnings. The same applies if your spouse has a traditional job and you file jointly.
Revising your withholding ensures that the amount you will end up owing will be less than $1,000 and you will not be penalized for underpayment.
To do this, you will need to fill out a new W-4 form. Navigate to the row called “Other Income” and enter your expected net earnings from freelancer or contractor work. You can also use the IRS Tax Withholding Estimator tool to help you with this process.
How Much Should I Pay?
This is where Keeper Tax has your back through our Quarterly Tax Calculator. Simply enter in your state, your expected monthly income from self-employment, and your spouse’s details. From there, our tool will tell you how much to pay and by when.
When in doubt, you can utilize the “safe harbor” method to make sure you are not penalized by the IRS. Using this method, you must pay in 100% of your total tax liability shown on your prior year tax return. Take this “total tax” number, subtract any expected employer withholding (if you have a traditional job), and divide it by four. Voila, you have your quarterly payment number!
The penalty includes both a cumulative monthly percentage, as well as a monthly interest rate. As a rule of thumb, it’s about 7% of the taxes you’ll owe at the end of the year.
💡Pro tip: the way the penalty works, every month you delay payment adds to the fee. If you missed the estimated tax payment deadline in April, you should double your payment in June to avoid six months of penalties.
The easiest way to pay federal quarterly business taxes is to e-file using IRS Direct Pay. Using this electronic federal tax payment system or direct pay, you can make a payment and have it drawn from your checking account. There is no need to submit any paperwork or tax forms along with your payment.
Most states that have state income tax also have methods to pay quarterly estimates electronically, very similar to the IRS’s system. Check your state’s department of revenue website for more information.
Paying via Check?
Paying via check or money order is also possible for quarterly estimates. To do this, you must fill out a voucher and mail your check to the US Treasury Department. The address that you’ll mail your check to will be different depending on where you live.
You can find the voucher and mailing instructions on Form 1040-ES. Keep in mind that Form 1040-ES is another great guide to calculate your quarterly estimated taxes, but is not a requirement for paying quarterly taxes. In fact, I’ve rarely worked with CPAs or taxpayers that utilize Form 1040-ES for calculating quarterly estimated taxes. Most tax preparers or professionals have their own tools to do the calculations on behalf of their clients.
How Do I Keep Track of Payments?
After you’ve made your payment, make sure to keep records of the date and amount that you paid. You’ll need this information to file your taxes. If you forgot to record how much you’ve already paid, no worries! You can verify this information by Requesting a Transcript from the IRS.
You will then use these records when filing annual taxes. Utilize Keeper Tax’s Filing Software to make tax time simple, and minimize the amount that you will owe.
Trust me, quarterly taxes do not need to be stressful. At the end of the day, they are simply an estimate. Taxes vary based on your income and your income is not always steady, which is why using your best judgment will come in handy. When in doubt, I recommend contacting a CPA or tax professional to give you tax advice and guide you through the process of how to file quarterly taxes.
Due Dates For Filing Quarterly Tax Payments
Here are the due dates for your estimated tax payments. Our current year (2020) had some changes to the dates for taxes due. See them below.
- 1st Quarter – July 15, 2020 (New extended deadline, changed from April 15, 2020)
- 2nd Quarter – July 15, 2020 (New extended deadline, changed from June 15, 2020)
- 3rd Quarter – September 15, 2020.
- 4th Quarter – January 15, 2021.
As a 1099 contractor, the IRS requires quarterly (estimated) tax payments and the second payment of 2020 is due on Wednesday, July 15th. Now is your chance to square up with the IRS and avoid hundreds of dollars in penalties at the end of the year (in the time it takes to mix a breakfast smoothie!).
Make sure you estimate and pay enough tax payments. If you do not, you can get an underpayment penalty.
How To File Estimated Taxes With Keeper
Now that we’ve gotten the why out of the way, let’s talk about the how.
First thing you’ll want to do when you are filing estimate taxes is to use Keeper Tax's quarterly taxes calculator to figure out how much you owe. This takes just a few minutes and requires only basic information like your rough monthly income and tax filing status.
💡 Pro tip: if you’re having trouble estimating your monthly self-employment income, don’t worry. It’s not critical to get it exactly right (hence estimated tax payments!) and the IRS gives you a 10% buffer in case you’re off. Also, it’s better to slightly overestimate than to under-estimate. At the end of the year, you’ll get that money back as a refund. That is why you need to file quarterly taxes. Here's what happens when you miss a payment.
Once you’ve input your numbers, press submit and you’ll get back exactly how much you should pay, along with links to making the payments online. As an added motivation, it also tells you exactly how much penalty you’ll be avoiding by making the payment!
Now, all that’s left is to make the payments online. For federal, click the “Pay online” button next to the corresponding amount, create an account and make a bank transfer. You can find step-by-step annotated instructions here.
If you’re lucky enough to live in an income-tax-free state, congratulations! You’re done.
For the rest of us, state payment portals are similar to how the federal payment works. You’ll create an account online, confirm your identity, and make the payment. Use the “Pay online” button next to your estimated to get started.
Celebrate Finishing Your 1099 Quarterly Taxes With A Smoothie 🥤
You did it! It’s not every day that you can avoid thousands in needless penalties in 15 minutes. Pat yourself on the back and go buy yourself a smoothie. You deserve it. Sign up with our tax software so we can help you save a ton of money from your tax bill. In fact, here are some more tips to help you get your taxes right in 2020.