Why Should I Make Estimated Tax Payments?

A lot of people envy the freedom of freelancing, but not the taxes involved with it! If you’re self-employed, an independent contractor, or have substantial non-wage income, then you'll need to make estimated tax payments to the IRS to avoid penalties and interest.

Because freelancers don’t have employers to withhold their taxes, they have to make quarterly tax payments. These taxes are used to pay:

• Federal Income tax
• State income tax
• Self-employment taxes
• Social security
• Medicaid/medicare

Many taxpayers choose not to make their payments because they think sending more payments to the IRS means they’re just paying more taxes. In reality, if you calculate your taxes precisely, you will end up saving a lot of money with deductions.

Now, let’s answer some of the questions that you may have regarding the quarterly taxes.

How does it work?

Quarterly payments are called “estimated taxes” because you don’t know exactly what your tax bill will be for the entire year since every individual has different expenses. When you finally complete your annual federal tax return you can report the estimated quarterly taxes you’ve already paid.

If those quarterly payments are more than what your tax return says you owe for the year, you will get a refund. But if your estimated tax payments don’t cover 100% of the bill, you will need to make an additional payment to the IRS.

When are 2021 quarterly taxes due?

Estimated tax payments have to be made periodically. The following table represents the quarterly tax due dates:

Freelancers are expected to file their estimated federal income tax and Social Security/Medicare payments four times a year.

If the due date happens to fall on a Saturday, Sunday, or holiday that year, you can pay on the next business day. Also, if you file your taxes by January 31st, you can make the rest of your tax payments for the previous year.

What will happen if you miss a quarterly estimated tax payment?

If you happen to miss one of the above tax deadlines, the IRS will charge you penalties and interest that can accrue depending on your income and lateness. . Typically, they dock a 5% penalty of your owed taxes, the following the due date.

However, don’t worry if you just missed your quarterly payment!  You can apply for a waiver - you can file an IRS Form 2210 and submit it with your tax return when you file. Aside from the form, you’ll need to explain with evidence why you weren’t able to pay them on time.

What if you owe more than you can pay?

Due to the pandemic, people dealt with a lot of financial troubles from the economic slowdown, job loss, and more. As a freelancer with an unsteady income, it might be difficult to arrange a safety fund to pay for your taxes. But don't put off filing your estimated tax just because you’re worried you can’t afford to pay the amount due.

The IRS will charge penalties and interest the day the return is due, no matter when you file. The best thing to do would be to file as soon as possible, pay as much as you can then, e and set up an installment plan for the remaining balance.

How do you qualify for estimated tax relief?

If you happen to live in an area hit by a natural disaster, you might qualify for tax relief from the IRS. The IRS often postpones the estimated tax filing deadline for taxpayers living in or having a business in a federally-declared disaster area. The agency maintains a list of specific disasters in which it offers tax relief.  You might also be able to deduct some of the personal property losses that are not covered by insurance or other reimbursements.

Filing your taxes can be complicated, and even more so if you’re self-employed and filing quarterly taxes.  That’s why we recommend filing through tax software or an official tax preparer.

What's the fastest way to file your quarterly taxes?

Report all your estimated tax payments on Form 1040, line 26. Also, include any overpayment that you wish to credit from your prior-year tax return. The fastest way to file your taxes is to do it electronically. It’s better to e-file your taxes since they will be electronically transmitted to the IRS, and you don't have to worry about it getting lost in the mail or arriving late. Moreover, you’ll receive a confirmation right away if the IRS received your submission and has started processing it.

Some of the other payment methods include:

• Same-day wire
• Check or money order
• Cash

You can also use FlyFin, which automatically calculates your taxes, and allows you to pay directly to the IRS with one click. FlyFin’s quarterly tax calculator accurately calculates the precise quarterly tax amount simply by scanning all your expenses. The entire process takes less than five minutes and makes your taxes effortless and accurate.