What are Quarterly Estimated Payments?
Estimated quarterly tax payments are a simple way to “self tax” yourself throughout the year so you don't end up owing a bunch of money on April 15.
What do we mean by "self-tax"? When you get a paycheck for a W-2 job, they generally withhold your taxes for you. But for the money you earn freelance, nobody is withholding anything from it.
Paying estimated quarterly taxes is a way of pre-paying the taxes you're going to owe on that untaxed income so that at the end of the year you don't owe as much, or anything at all!
The IRS wants us to pay quarterly because when they made the rules a long time ago, they thought everybody would earn money in equal amounts all year long. But we all know that's not how it actually works for freelancers.
What Amount Do I Pay Them?
The key to determining the amount you should pay is figuring out your profit (income minus expenses). Let's say you brought in $20,000 in the first quarter of the year, but had to pay $5,000 in expenses, that means you've got $15,000 in profit. The amount of tax you owe on that $15,000 will depend on the other kinds of income you bring in and what state you live in, but generally the total will fall somewhere between 25-35% total.
So every 3 months, make a rough estimate of your profit, then you'll want to pay about 20-30% of that to the federal government (send a check and payment voucher/1040ES to the IRS or pay online here. Then you'll also want to send a percentage to the state. A few commonly used state tax percentages are 8% for NYC residents and 5% for California residents. This percentage of profit should be sent to NY, CA, or your state to cover your estimated state/local tax for each quarter.
You can also check out our FAQ article on whether or not you should pay estimated taxes.
What Are the Deadlines?
The 2022 dates for which estimated quarterly taxes are due are:
- Q1 Deadline is April 18, 2022
- Q2 Deadline is June 15, 2022
- Q3 Deadline is September 15, 2022
- Q4 Deadline is January 15, 2023
If you're still confused, please reach out to firstname.lastname@example.org for help in setting up a consultation, individualized for your situation.