As a freelancer, you have many things that are constantly on your mind: networking, on-boarding new clients, and managing existing clients — just to name a few! One big thing you could be forgetting is paying your estimated quarterly taxes to the IRS. These payments are made up of your federal tax withholding and your self-employment taxes.
If you have never registered your freelancing business with your state or if you have filed as a “Single Member LLC,” you are required by law to pay in addition to your federal taxes, something called “self-employment tax.” Self-Employment Tax is only imposed on these 2 out of the 5 recognized business types by the IRS.
What is Self-Employment Tax?
Have you ever received a paycheck from an employer and looked at the deductions? You might have noticed that your employer takes out Social Security, Medicare, Federal Tax, and State Tax (If you live in a state that collects state income tax).
Self-employment tax is made up of Social Security and Medicare tax. You may be thinking, “Great! I only have to pay 7.65% in taxes.” I wish this was the case. One thing you might not know is that when an employer cuts a check, they pay the same tax for each employee. They also pay 7.65% in tax expenses on your behalf to the government.
Now that you’re self-employed or received self-employment income — if you are a 1099 this includes you too! — You are now liable for the full 15.3% of taxes to pay to the government.
What if I haven’t paid my estimated taxes all year?
Don’t fret! Granted, if you are current on prior year tax payments back to the IRS or if you don’t owe any back taxes, you don’t have anything to worry about. You can make all of your year-to-date payments in one lump-sum payment to bring you current again.
Know this: As long as you pay all of your payments prior to the following year’s tax return due date, you will not incur any fees or fines.
There’s a payment system called EFTPS that is part of the IRS where you can go into the portal and register yourself for payment of quarterly taxes. Instructions on how to do this can be found here.
When are Quarterly Payments Due?
Quarter 3 2018 (July, August, September) payments are due September 17th, 2018.
Quarter 4 2018 (October, November, December) payments are due January 15th, 2019.
How Do I Calculate my Estimated Quarterly Taxes?
Each year, the IRS releases a worksheet called 1040-ES. This form is updated each year to reflect the changes (if any) to the current tax code so be sure to use the form for the current tax year. The full breakout and instructions for completing the worksheet can be found here.
If you’re not a fan of light tax reading (32 pages worth of instructions) on form 1040-ES, there’s a company called bSolo. For $12.99 each month, they will assist you with making your quarterly tax payments. This service will automatically detect any payments that might meet “self-employment income” requirements, take the money out and put it in an account for you, and then auto file your quarterly payments on your behalf.
About the Author
Alex Hubenthal
Financial Acumen
Alex Hubenthal is the Owner of Bookscaping. His mission is to educate 100,000 small business owners in small business finance so they can not only thrive in their businesses but in their personal lives as well. Alex has helped his clients grow their revenue, found ways to help them reduce their tax bill, and has coached them on finding ways to standardize their business to add more to the bottom line.
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