Introduction
Freelancers and self-employed individuals must pay taxes throughout the year instead of having them withheld from a paycheck. The IRS requires freelancers to make quarterly estimated tax payments to cover income tax and self-employment tax (Social Security and Medicare) under IRC § 6654.
Failing to pay estimated taxes on time can result in penalties and interest charges. This guide explains who must pay estimated taxes, how to calculate them, and how to file correctly.
Who Needs to Pay Estimated Taxes?
You must make quarterly tax payments if:
- You expect to owe at least $1,000 in federal taxes after subtracting credits and withholding.
- You are a freelancer, independent contractor, or self-employed business owner.
- You receive 1099-NEC, 1099-K, rental income, dividends, or other untaxed income.
Who Is Exempt from Estimated Taxes?
- Employees with taxes withheld from a W-2 paycheck.
- Taxpayers who owed less than $1,000 in the previous year.
Quarterly Estimated Tax Payment Deadlines (2025)
| Quarter | Income Earned | Payment Due Date |
|---|---|---|
| Q1 | January – March | April 15, 2025 |
| Q2 | April – May | June 16, 2025 |
| Q3 | June – August | September 15, 2025 |
| Q4 | September – December | January 15, 2026 |
How to Calculate Estimated Taxes
Step 1: Estimate Your Taxable Income
- Add up all freelance income, rental earnings, investment income, and business profits.
Step 2: Determine Your Tax Liability
- Self-Employment Tax (IRC § 1401) – 15.3% on net earnings over $400.
- Income Tax – Based on IRS tax brackets for your filing status.
Step 3: Apply the Safe Harbor Rule
To avoid penalties, you must pay at least:
- 90% of your current year’s tax liability, OR
- 100% of last year’s total tax (110% if AGI > $150,000).
Example: Estimated Tax Calculation
| Category | Amount ($) |
|---|---|
| Freelance Income | 80,000 |
| Business Expenses | (20,000) |
| Net Profit | 60,000 |
| Self-Employment Tax (15.3%) | 9,180 |
| Income Tax (22%) | 13,200 |
| Total Estimated Taxes | 22,380 |
Quarterly Payments (Divide by 4) 5,595 per quarter
How to Pay Estimated Taxes
Option 1: Online Payment
- IRS Direct Pay – Pay from a bank account at irs.gov/payments.
- EFTPS (Electronic Federal Tax Payment System) – Secure online payment system.
Option 2: Mail a Check
- Send Form 1040-ES with payment to the IRS.
Option 3: Automatic Withdrawal or Credit/Debit Card
- Payments can be scheduled through IRS-approved payment processors.
How to Report Estimated Taxes on Your Tax Return
- Enter total estimated payments on Line 26 of Form 1040.
- If you overpaid, the IRS will issue a refund or apply it to next year’s taxes.
Common Estimated Tax Mistakes to Avoid
- Missing deadlines – Leads to IRS penalties and interest.
- Underpaying taxes – May result in a large tax bill in April.
- Forgetting self-employment tax – Must pay both income and payroll taxes.
- Not adjusting for income changes – Review income every quarter to adjust payments.
IRS Forms & Compliance Checklist
- Form 1040-ES – Estimated tax payment form.
- Form 1040 (Schedule C) – Report freelance income and expenses.
- Schedule SE (Form 1040) – Calculate self-employment tax.
- Bank statements and receipts – Maintain records for three years for IRS audits.
Conclusion
Filing quarterly estimated taxes ensures freelancers stay compliant with IRS rules and avoid tax penalties. Calculating estimated taxes correctly and paying on time helps manage cash flow and reduce tax surprises.
For expert tax guidance, schedule a meeting with our CPA Anshul Goyal by clicking at https://calendly.com/anshulcpa/ now.
Frequently Asked Questions (FAQs)
1. What happens if I don’t pay estimated taxes?
The IRS may charge penalties and interest on unpaid taxes.
2. Can I adjust estimated tax payments?
Yes, if income changes, you can increase or decrease payments each quarter.
3. Are estimated tax payments required for gig workers?
Yes, if gig workers earn over $400 in net profit, they must pay estimated taxes.
4. Can I pay estimated taxes all at once?
Yes, but the IRS recommends quarterly payments to avoid penalties.
5. Do I still need to file a tax return if I make estimated payments?
Yes, Form 1040 must be filed annually to report income and deductions.
About Our CPA
Anshul Goyal, CPA EA FCA is a licensed Certified Public Accountant and an IRS Enrolled Agent (EA). He specializes in freelancer tax strategies, estimated tax planning, and IRS compliance.
Schedule a consultation today with Anshul Goyal, CPA, to ensure accurate tax filing and payment planning.