Congrats on being self-employed and making money (and paying taxes). When you are self-employed taxes are no longer being withheld from your paycheck. You are now solely responsible for your “withholding” situation! You have two options (1) do absolutely nothing (2) pay in quarterly estimated tax payments.
(1) If you do nothing you will have to pay all your taxes when you file your income tax return. Also you will be hit with an underpayment penalty (IRC §6654)
(2) Be responsible and pay quarterly estimated tax payments. These payments are due:
April 15th (1st QTR)
June 15th (2nd QTR)
September 15th (3rd QTR)
January 15th (4th QTR)
Estimated Tax Payments explained by Becky from the IRS:
Federal Estimated Tax Payments are made using Form 1040-ES
How much should your estimated tax payments be? The actual amount will depend on your Income Tax Bracket.
However, there is a “safe harbor” an amount that if paid will insure you will not be subject to any underpayment penalty.
The Safe Harbor amount is the lessor of:
90% of current year tax to be reported on the upcoming tax return.
OR
100% of prior year tax that is shown on your prior year tax return.
110% of prior year tax – IF PRIOR YEAR ADJUSTED GROSS INCOME (AGI) EXCEEDED $150,000
Peter E. Alizio is a CPA, Tax Attorney, and owner of Alizio Law, PLLC. When he is not solving IRS and NYS tax problems he likes watching football and playing amateur chef. He also enjoys meeting new people, preferably over coffee, whiskey or cigars.