What Freelancers Should Know About Quarterly Taxes

Most people probably think of April 15th as the deadline for their tax returns. However, for self-employed individuals, freelancers, or gig workers, additional obligations arise: the quarterly estimated tax payments. These payments are also known as "quarterly tax payments." The estimated tax payments are necessary for income that is not subject to regular tax withholding. The U.S. tax system is based on the "pay-as-you-go" principle. Taxpayers, therefore, must pay taxes on income as it is earned, rather than waiting until the next April 15th. When one works in a traditional W-2 job, the employer withholds taxes directly from the paycheck. For other sources of income, such as freelance work, this does not happen automatically, bringing estimated tax payments into play. Individuals with these types of income may need to make quarterly tax payments to avoid penalties for unpaid taxes. Typically, estimated tax payments are required when certain criteria are met. Since the payment deadlines are not exactly quarterly but range between two to four months, the term "quarterly tax payments" can be somewhat misleading. The due dates are the 15th of January, April, June, and September each year. If a due date falls on a weekend or legal holiday, the next business day is applicable. Frequent payments can also be made to simplify one's budgeting plan. Thus, one can pay monthly or weekly to minimize the amount at the end of the quarter. The estimated payable income can be calculated in various ways. If one is self-employed, additional Social Security and Medicare taxes must be covered, which are usually split between employee and employer. If too much has been paid by the end of the year, the excess amount can be refunded or applied to the next tax bill. Payments can be made in different ways, including when filing the tax return on the deadline. Failing to pay on time risks interest and a penalty. This can be up to 0.5% of the outstanding tax per month and is capped at 25% of the due amount. In some cases, penalties can be avoided if, for example, one is unintentionally late on payments. It is advisable to make at least partial payments to minimize interest and penalties. Even if there are still tax debts at the end of the year, taxes should be filed on time to avoid higher penalties for late filing. An installment agreement form can be used to request an extension or installment payments.