· Listen
If you're a W-2 employee, your employer withholds taxes from every paycheck. If you have substantial income that isn't withheld (freelance work, business income, investment gains), the IRS expects you to pay estimated taxes throughout the year, or you'll owe penalties at tax time.
Who needs to pay quarterly
You generally need to pay estimated taxes if you expect to owe at least $1,000 when you file. This includes self-employed people, gig workers, contractors, and anyone with significant non-W-2 income.
When they're due
Roughly four times a year: April 15, June 15, September 15, and January 15. The dates are calendar-based, not three months apart. June and September come up faster than people expect.
How much to pay
Two safe-harbor methods to avoid penalties:
- Pay 100% of last year's total tax (110% if you earned over $150K)
- Pay 90% of this year's actual tax
The first one is easier: look at last year's tax bill, divide by 4, pay that each quarter. Even if you make more this year, you won't owe penalties.
What this lesson is NOT
This is not tax advice or a calculation of what you owe. Your required payments depend on your total income, deductions, withholding, and state, which vary widely. Safe-harbor rules and deadlines are set by the IRS and can change. If your self-employment income is meaningful, a CPA is worth the fee.
Quick check on this lesson
Answer each question and we’ll show you why the right answer is right, and why the others aren’t.
- 1.
Per the lesson, why do W-2 employees usually not need to think about estimated taxes, but freelancers do?
- 2.
Per the lesson, who needs to pay estimated quarterly taxes?
- 3.
Per the lesson, when are estimated quarterly tax payments due?
- 4.
Per the lesson, what are the two safe-harbor methods to avoid estimated-tax penalties?
- 5.
Per the tax callout, what's the single best habit a self-employed person can build for handling taxes?
0 of 5 answered