Generally, self employed individuals do not have federal and state income taxes, Social Security or Medicare withheld from their pay. While this may sound like a loophole, it's not. In fact, it means that self employed taxpayers are subject to some additional responsibilities.
Each quarter, the IRS requires that these taxpayers make estimated quarterly tax payments. It is important that business owners plan on setting aside a portion of their income to cover federal and state income taxes as well as self-employment tax. Hurdlr can automatically calculate your estimated taxes, taking into account your income and expenses, so you know what is safe to spend and what you should set aside for ongoing tax payments.
More on Quarterly Tax Payments
- The best way to remit your estimated taxes to the IRS is to complete Form 1040-ES and send in your quarterly tax payment vouchers. You should visit your state's tax and revenue website for state specific payment vouchers. By making estimated quarterly payments you will be in compliance with IRS requirements and save on interest and penalties.
- You can compute your estimated quarterly taxes based on your prior year earnings or by projecting your current year income.
- Your estimated tax payments are due on or around the following dates: April 15th, June 15th, September 15th and January 15th.
- Your Self Employment Tax liability will be included as part of your estimated tax payment if you use Form 1040-ES to calculate your estimated payments.
- You will be subject to underpayment penalties unless you make estimated payments equal to 90% of the tax shown on your current year return or 100% of the tax shown on your prior year return.
- If your AGI for 2016 was more than $150,000 ($75,000 if your filing status for 2017 is married filing a separate return), substitute 110% for 100%).
- If you did not have any tax liability in the prior year or owe less than $1,000 you will not be subject to underpayment penalties.
- In addition to penalties, you will also have to pay non-compounding interest on any underpaid taxes at the federal rate, which was 4% in 2016.
- Estimated Taxes Filing Form (Form 1040-ES)
- IRS Publication on Tax Withholding and Estimated Taxes (Publication 505)
Disclaimer: The information contained here is provided for informational purposes only and should not be construed as financial or tax advice. It is not intended to be a substitute for obtaining accounting or other financial advice from an appropriate financial adviser or for the purpose of avoiding U.S. Federal, state or local tax payments and penalties.