We are excited for all kinds of days in the year, like our birthdays, Christmas Eve, New Year’s Day, etc. But there is one day that we would instead like to skip – Tax Day!
But there is an irony associated with Tax Day! You don’t actually pay your yearly tax on Tax Day, that is April 15. In fact, by that date, most US employees have already withheld enough from their paychecks throughout the year to pay their taxes. While you file the tax return on Tax Day, you are just informing IRS whether you underpaid or overpaid your taxes.
Use this widget to calculate quarterly tax:
But what happens when you don’t have an employer above you to withhold your taxes? Whether you are self-employed or a freelancer, you are still eligible to pay taxes to the Government. You can envy the freedom of flexible working hours and being your own boss that comes with freelancing, but not the taxes involved with it! And when you don’t have anyone to withhold your taxes, you are responsible for reporting it directly to the Internal revenue System (IRS). And when your income from freelancing is above some level mentioned by IRS, you are required to pay quarterly or Estimated taxes.
Quarterly Estimated taxes are the payments made to IRS four times a year. Let us understand in detail quarterly taxes, who needs to pay them, and how the quarterly tax payment calculator eases the process of calculating the tax.
Understanding Quarterly Taxes
If you are an earning citizen of the US, you are required to share part of your income as income tax with the Federal Government whether you work in an organization or are self-employed.
Those who receive their income on a regular salary-based system need not worry about taxes as it is already withheld from their paychecks by their employers based on the W-4 forms filed by the employees. The one who does not have an employer need to directly pay to the government in the form of quarterly taxes. They don’t have to wait the whole year to pay the long bill while filing the annual tax return. In other words, self-employed workers have four tax days in a year.
There are two categories of quarterly taxes:
- Self-employment tax:
The self-employment tax rate is 15.3%. The rate consists of two parts:
- 4% for social security (old-age, survivors, and disability insurance)
- 9% for Medicare (hospital insurance)
- Income tax:
It is the total tax amount you pay annually at the regular income tax rate.
The quarterly taxes are called estimated taxes because you don’t know what your total tax payment will be at the end of the year, and you just estimate the amount each quarter. While you file your tax return and find that you have paid more in your quarterly taxes than you owe to the government, you can apply to IRS for a refund. Also, if you find that you have underpaid on your quarterly taxes, you will be required to make the additional payment to the IRS.
Who are eligible to pay quarterly taxes?
As mentioned above, self-employed citizens are required to pay estimated taxes. Let us see who is added to the list of self-employed and needs to estimate their taxes.
- Freelancers: People who are not working under an organization and are working directly for the clients. A freelancer is an independent worker who earns income on a per-job or per-task basis, typically for short-term work. They can choose the projects of their own choice. For example, independent journalists write a report of their own interest and then sell the report to the highest bidder. It also includes freelance content writers, marketers, designers, etc.
- Independent Contractors: People who have a contract with an organization and for companies are known as independent contractors. They are not an employee and also cannot enjoy employee benefits. For example, doctors, dentists, actors, veterinarians, musicians, lawyers, and tutors, provide independent services to the people.
- Small business owners and entrepreneurs who handle their business single-handedly
Some incomes are considered taxable:
- Rental Income
- Capital Gains
- Award prizes
- Pension income
- Mortgage income
- Dividend income
- Lottery Amount
- Writers and singers, who earn royalties on their work
When Are Quarterly Taxes Due?
Since Quarterly taxes need to be paid four times a year, it is divided into equal gaps of three months throughout the year, and the due date is on the following dates:
|Payment Period||Due Date|
|Jan. 1 to March 31||April 15|
|April 1 to May 31||June 15|
|June 1 to Aug. 31||Sept. 15|
|Sept. 1 to Dec. 31||Jan. 15 of the following year|
When there is a public holiday, or a Saturday-Sunday falls on the 15th of the due date’s month, the date gets shifted to the next business date. However, keeping track of these dates is very important as missing due dates might charge you a penalty.
You might even be charged a penalty when you don’t pay enough amount you owe on the tax return by the due date or when you are due a refund when you file the annual tax return.
How to calculate the amount to be estimated in quarterly taxes?
Calculating estimated tax is not an easy job. First, you need to estimate your annual income in the tax year, apply the tax rate on the total revenue, then apply legitimate tax deductions mentioned by IRS, and then divide the total tax amount to be paid into four to pay the estimated quarterly taxes. However, you need to be very careful with the calculations, as a minor mistake might cause you a penalty.
With the help of technology and automation, human errors can be eliminated in the field of tax calculation. You can accurately calculate all your taxes and easily track all deductions with the Quarterly tax payments. Its AI tax engine is the most reliable and efficient quarterly tax payment calculator for self-employed and freelancers. Simply connect all your expense accounts with FlyFin, which makes tax filing easy for you.