Quarterly Estimated Taxes for Freelancers

In the US, you generally need to make estimated tax payments if you expect to owe at least $1,000 in federal tax for the year after subtracting withholding and refundable credits. Most freelancers with a steady income cross that line in their first year. Many states have their own estimated payments too.

The periods are uneven: the second covers two months and the last covers four. A due date on a weekend or holiday moves to the next business day.

• Income tax on your profit: what you earned minus business costs.
• Self-employment tax: 15.3% on most of your net earnings, covering Social Security and Medicare. An employer would pay half of this for an employee; self-employed people pay both halves, and can deduct half of it from income.

You avoid an underpayment penalty if what you pay during the year (estimated payments plus any withholding) covers at least the smaller of:

• 90% of this year's tax, or
• 100% of last year's tax (110% if last year's adjusted gross income was over $150,000, or $75,000 if married filing separately).

Paying a quarter of last year's tax (or 110% of it) on each due date is the simplest way to stay inside it when your income grows.

Move a fixed share of every client payment into a separate savings account the day it arrives, and pay the estimates from there. 25% to 35% is a common range; an accountant can give you a number for your situation. When the due date comes, the money is already waiting.

Pay federal estimates online through IRS Direct Pay or your IRS online account, or with Form 1040-ES.