The self-employed person's guide to paying quarterly taxes

One of the great things about being self-employed is that no taxes are withheld from your pay by your clients or customers. But, this doesn’t mean you can wait until April 15 to pay all the tax you owe for the year.

If you’re self-employed, you ordinarily have to make tax payments to the IRS four times during the year. That is, once every quarter.  

The IRS calls these quarterly tax payments estimated taxes. Here’s what you need to know about estimated taxes.

Who has to pay estimated taxes?

You must pay estimated taxes if you expect to owe at least $1,000 in federal tax for the year. This collective group includes income tax, Social Security tax and Medicare tax.  

However, if you paid no taxes last year, you don’t have to pay any estimated tax this year, no matter how much tax you end up owing for the year. But this is true only if:

• You were a U.S. citizen or resident for the year, and
• Your tax return for the previous year covered the whole 12 months.  

Many self-employed people also work as employees, whether full-time or part-time. They have taxes withheld from their pay by their employers. If you work as an employee, you don’t have to pay estimated tax if the taxes withheld by your employer amount to at least 90% of the total tax you owe for the year.

So, you can avoid paying estimated taxes by asking your employer to increase your employee withholding. To do this, file a new Form W-4 with your employer. There is a particular line on Form W-4 for you to enter the additional amount you want your employer to withhold. Use the IRS Tax Withholding Estimator to make sure you have the right amount of tax withheld.

When to pay estimated taxes

You ordinarily pay your estimated taxes in four installments. The first payment for the current year is due on April 15, as shown in this chart:  

Income Received for the PeriodEstimated Tax Due DateJan. 1 through Mar. 31April 15April 1 through May 31June 15June 1 through Aug. 31September 15Sept. 1 through Dec. 31January 15 of the following year

Don’t get confused by the fact that the January 15 payment is the fourth estimated tax payment for the previous year, not the first payment for the current year.  

You don’t have to start making payments until you begin earning income. For example, if you don’t receive any income by March 31, you can skip the April 15 payment. In this event, you’d ordinarily make three payments for the year, starting on June 15. If you don’t receive any income by May 31, you can skip the June 15 payment as well, and so on.  

You can also skip the January 15 payment if you file your tax return and pay all taxes due for the previous year by January 31 of the current year. This incentive is a little reward the IRS gives you for filing your tax return early.

However, it’s rarely advantageous to file early because you’ll have to pay any tax due on January 15 instead of waiting until April 15. In other words, you’ll lose three months of interest on your hard-earned money.