Being self-employed carries its own loads of responsibility, including maintaining and managing taxes. You might consider whether you should make quarterly payments or one lump-sum payment toward your self-employment taxes at year-end. By being aware of the requirements and best practices here, you will spare yourself penalties and create some degree of freedom for your financial management.
What are self-employment taxes?
Self-employment tax generally consists of Social Security and Medicare tax. Unlike traditional employees, self-employed individuals are responsible for paying both the employer and employee contributions, for a total of 15.3%. This is 12.4% for Social Security and 2.9% for Medicare.
Who needs to make quarterly tax payments?
If you expect to owe $1,000 or more in taxes for the year, the IRS requires you to make quarterly estimated tax payments. This includes freelancers, independent contractors, and small business owners. Failure to do so may result in penalties and interest charges.
How to calculate your quarterly estimated taxes
To determine your quarterly payments:
- Estimate your annual income: Consider all sources of income, including self-employment earnings.
- Subtract deductible expenses: This includes business-related costs that can reduce your taxable income.
- Apply the self-employment tax rate: Calculate 15.3% of your net income to cover Social Security and Medicare taxes.
- Divide by four: This gives you the amount to pay each quarter.
The IRS provides Form 1040-ES, which includes worksheets to help you calculate your estimated tax payments.
When are quarterly tax payments due?
These are when quarterly payments are due:
- First quarter: April 15, 2025
- Second quarter: June 16, 2025
- Third quarter: September 15, 2025
- Fourth quarter: January 15, 2026
Timely payments help you avoid potential penalties.
Consequences of not paying quarterly taxes
If you do not make the required quarterly payments, you may face penalties and interest charges. The IRS expects taxes to be paid as income is earned, and delaying payments can result in additional costs.
Can you pay self-employment taxes annually?
While all citizens must submit a yearly return, as a self-employed individual, you are typically expected to make quarterly payments of your estimated tax. Making annual payments could be subject to penalty fees if your proper taxes are not paid throughout the year.
Strategies to simplify quarterly tax payments
Some tips for managing your tax responsibility better would include:
- Save regularly: A portion of your income should be set aside for the remittance of estimated taxes.
- Use accounting software: Such programs help in tracking income and expenses, thereby simplifying tax calculations.
- Consult a tax advisor: This will provide professional advice concerning your finances.
Related article:
What’s the earliest I can file my 2025 taxes? Key dates for 2026 tax season
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