If you're self-employed, a freelancer, or a business owner, you don't have an employer withholding taxes from a paycheck. That means the IRS expects you to pay taxes four times a year — and if you don't, you'll face penalties come April.
You generally must pay quarterly estimated taxes if:
W-2 employees with a side business may also need to make estimated payments if their withholding doesn't cover their full tax liability.
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Missing these deadlines results in an underpayment penalty, currently around 8% annualized.
There are two safe harbor methods:
**Method 1 — Pay 100% of last year's tax liability** divided across four quarters. This is the simplest approach and guarantees no penalty regardless of what you earn this year.
**Method 2 — Pay 90% of this year's estimated liability.** This requires more forecasting but can result in lower payments if your income has dropped.
Don't forget: self-employed individuals pay both the employee AND employer portions of Social Security and Medicare — a combined 15.3% on net earnings. This is on top of income tax, so your total effective rate is often higher than you expect.
The good news: you can deduct half of your self-employment tax from your taxable income.
The easiest way to pay is through the IRS Direct Pay portal (irs.gov/payments) or EFTPS (Electronic Federal Tax Payment System). You can also mail a check with Form 1040-ES.
Most states with income tax also require quarterly estimated payments. Deadlines and rates vary by state — check your state's revenue department for details.
Quarterly taxes are manageable with the right planning. If you're not sure what you owe, Owl Bookkeeping Co. can help you calculate your estimated payments and set up a system so you're never caught off guard. Book a free consultation to get started.
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