Guide to Calculating and Filing Federal Quarterly Taxes for Small Businesses and Self-Employed
Lectura de 6 minutos
Last Updated: 11/04/2022
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As a small business owner or self-employed individual, you are responsible for paying estimated taxes each quarter. Many people are unaware of this requirement and are surprised when they get a bill from the IRS.
For most business owners or self-employed individuals, taxes are not automatically withheld from wages the way they are with W-2 employment. You can reduce the risk of an unexpected bill during tax season or potential fees or penalties with the IRS by understanding your obligations with quarterly estimated taxes, including what they are, how they are calculated, and when to pay them.
What Are Quarterly Taxes?
Quarterly taxes are estimated taxes that you pay throughout the year on income where taxes were not automatically withheld. This can include income from interest, dividends, alimony, rent, gains from the sale of assets, prizes, and awards. But additionally, it primarily applies to self-employment income or income earned as a small business owner.
When you are self-employed or you own the business that provides your income, you are responsible for paying your own taxes. This includes income tax, Social Security tax, and Medicare tax. Unlike employees who have these taxes withheld from their paychecks by their employer, self-employed individuals and small business owners are responsible for paying these taxes themselves. This is typically done through quarterly tax payments filed with the IRS.
Quarterly taxes may also be referred to as estimated taxes, quarterly estimated taxes, self-employment taxes, or quarterlies.
Who Does and Doesn’t Need To Pay Quarterly Taxes?
U.S. taxpayers must file quarterly taxes if all of the following are true:
- They have income that does not automatically have federal taxes withheld.
- They expect to owe more than $1,000 in taxes when the end-of-year return is filed.
In addition, you may need to file quarterly taxes if you owe taxes from a prior year.
Even if you own a small business, have freelance or self-employment income, or have other income (such as interest or investment payments), you may not necessarily be required to pay quarterly taxes. Taxpayers that meet all of the following requirements are considered "safe harbor" taxpayers and do not have to pay estimated taxes throughout the current tax year:
- You had no tax liability for the previous tax year.
- You were a U.S. citizen or resident alien for all of the prior year.
- Your prior year tax covered a 12-month period.
If you're not sure whether you are required to file estimated quarterly taxes, it's best to consult with a tax professional to assess your eligibility and requirements.
How To Calculate Quarterly Taxes?
Quarterly taxes are payments made every quarter toward your expected tax liability for the year. For example, if you had relatively consistent income and you expected to owe $4,000 in taxes for the year, you would pay approximately $1,000 each quarter.
Your actual quarterly tax payments will vary with your income, and you can calculate the exact amount of your estimated payments by completing the appropriate IRS tax form to calculate your income earned during the quarter and the resulting tax owed.
To calculate your quarterly taxes:
- Gather all of the necessary documents that show income earned during the estimated tax period. This may be pay stubs, 1099 forms, revenue receipts from your business, or other documentation of your income.
- Total all of your income for the quarter (not including any W-2 income from regular employment where taxes have already been withheld).
- Subtract any deductions, such as medical insurance payments or retirement contributions. The resulting number is your taxable income.
- Use the appropriate IRS estimated tax form (see below for additional details) to calculate your applicable tax rate. Multiply your taxable income by your tax rate to arrive at your quarterly tax liability.
While this may sound like a hassle, paying quarterly taxes can actually save you money in the long run. By making smaller payments throughout the year, you can reduce the risk of penalties and interest charges that can add up quickly. In addition, quarterly taxes can help to even out your cash flow by allowing you to spread out your tax bill over the course of the year.
When Are Quarterly Taxes Due?
Below you can find quarterly tax dates. Each year, there are four payment periods for quarterly taxes:
- Income earned from January 1st – March 31st is paid on or around April 15th
- Income earned from April 1st – May 31st is paid on or around June 15th
- Income earned from June 1st – August 31st is paid on or around September 15th
- Income earned September 1st – December 31st is paid on or around January 15th of the following year
If you had self-employment income or other business income where taxes were not withheld in 2022, your quarterly estimated tax payments would be due on:
- April 18, 2022
- June 15, 2022
- September 15, 2022
- January 17, 2023
After making the above estimated tax payments, you would then file your annual 2022 tax return in April 2023.
What Happens if You Miss a Quarterly Estimated Tax Payment? Is There a Penalty?
If you do not pay enough tax throughout the year, or you miss a quarterly tax payment, you may be charged a penalty. The general rule is that 90% of your tax liability must be paid through withholding or by making timely quarterly estimated tax payments during each fiscal or calendar year; otherwise, penalties may apply, even though a refund is expected when your return is filed.
Any penalties owed are calculated based on the amount of tax you owe and the length of time that it's unpaid. The longer you go without paying, the higher the penalty will be. The IRS typically charges 0.5% of the total amount due as soon as you are late. Each month that your payment is not received, the penalty increases, up to a maximum penalty of 25%.
There are a few circumstances under which you may be able to avoid the penalty, such as if you can show that the failure to pay was due to circumstances beyond your control. But in general, it's best to make sure that your estimated tax payments are made on time in order to reduce the risk of any penalties. If you realize that you have missed a quarterly estimated payment, the best course of action is to make the payment and submit the associated tax forms to the IRS as soon as possible.
How To File Quarterly Taxes
The process for paying and filing quarterly estimated taxes is similar to filing an end-of-year tax return. To meet your quarterly requirements, you will need to calculate any tax owed using the appropriate IRS forms, then submit the completed forms and any payment due using one of the payment options available through the IRS.
Here's a more detailed step-by-step guide:
- Determine your tax liability for the quarter. This will be based on your income and deductions for the quarter.
- Fill out the correct IRS form used for calculating estimated tax liability.
- Make a payment for the full amount of your estimated quarterly taxes due using one of the official IRS payment options.
- Keep records of your payment. Be sure to keep a copy of your IRS form, any documentation used to calculate your estimated tax liability, and your payment confirmation for your records.
By following these steps, you can help ensure that you're in compliance with the IRS's quarterly estimated tax requirements.
To properly calculate your estimated taxes and submit them to the IRS, you will need to use the designated tax form for your situation:
- Individual filers (including sole proprietors or partners) should use IRS Form 1040-ES.
Use the detailed instructions provided with each form to accurately calculate your estimated tax liability for the quarter. If you do not feel comfortable completing the forms, it's best to contact an experienced quarterly tax preparer to help reduce unnecessary penalties associated with underpayment.
How To Pay Quarterly Taxes
No matter how you prefer to handle your tax liabilities, the IRS offers multiple convenient payment options to submit your quarterly estimated taxes on time:
- Online through the Electronic Federal Tax Payment System (EFTPS).
- By mail to the address listed on Form 1040-ES.
- By phone (your completed tax form will still need to be submitted via mail or online).
- Using your mobile device with the IRS2Go app.
- Same-day wire transfer (additional fees may apply).
Be Proactive About Your Quarterly Tax Obligations
Paying quarterly taxes may seem like a daunting task, but it's important to stay current on your tax obligations to reduce unnecessary fees and penalties. Whether you are self-employed, a sole proprietor, or an independent contractor, correctly filing your quarterly estimated taxes is a requirement if you are earning income where taxes are not already withheld on your behalf. By understanding what quarterly taxes are and how to pay them, you can ensure that you stay compliant with the IRS.