Freelancers and Taxes Part 2: Introduction to Quarterly Taxes

by Thursday Bram

The biggest difference between doing your taxes as an employee and doing them as a freelancer, at least in the U.S, is figuring out just what to do about quarterly estimated income tax. Since your clients pay you as a contractor, rather than an employee, they do not make sure that the IRS receives your payroll taxes. Instead, you’re responsible for sending in a check every quarter for a fourth of the amount you expect to owe at the end of the year.

Not Every Writer Has To Pay Quarterly Estimated Taxes

In general, it seems like every freelancer should be submitting a tax payment to the IRS every three months, but that isn’t actually the case. If you’re freelancing part-time and working for an employer the rest of the time, you don’t have to make quarterly payments. Instead, by adjusting your payroll taxes with your employer, you can make sure that you’re paying enough to cover your freelancing income as well.

There are other situations in which you may not need to make quarterly as well. If you’re just starting out, you may not reach the threshold for quarterly payments this year: if you expect to owe less than $1,000 in taxes for this year, you are not obligated to make quarterly payments.

Filing Quarterly Estimated Income Taxes

As long as you’ve got your most recent income tax return, getting your quarterly estimated tax payments ready is a fairly simple process. You can view the IRS’ instructions in Publication 505 and download Form 1040-ES (PDF). To sum up the instructions, though, you’ll need to check the total tax and your withholding on your last return. You’ll be paying a quarter of the difference between the two number in every payment. You can either file your paperwork and make your payment through the mail or you can pay online through the Electronic Federal Tax Payment System.

If your income this year will be much higher than last year’s total, you may want to recalculate your quarterly payments based on how much you’re actually earning. There can be penalties if you pay significantly less than your total tax owed for the year through your quarterly payments.

While working with a CPA or tax preparer to get your quarterly payments ready to go is an especially good idea if you’re filing them for the first time, I’d recommend at least checking in with your tax professional. It’s impossible to give universal tax advice — everyone’s situation is different — and the variables that go along quarterly payments can make it important to get help with your specific situation.