What Are Quarterly Taxes - Explained
What Are Quarterly Taxes?
Quarterly taxes are estimated tax payments that self-employed individuals, freelancers, small business owners, and others earning income without tax withholding must make four times a year. These payments cover your income tax as well as self-employment taxes, which fund Social Security and Medicare.
Unlike salaried employees, who have taxes withheld from each paycheck, people in self-employment or those who earn side hustle income are responsible for paying taxes directly to the IRS. If you don't make quarterly payments, you might owe a large lump sum at the end of the year, along with penalties for not paying on time.
Who Needs to Pay Quarterly Taxes?
In general, you need to make quarterly tax payments if you expect to owe at least $1,000 in taxes when you file your tax return. If you earn income outside of a traditional job (e.g., freelance work, rental income, investments), you're likely required to pay estimated quarterly taxes.
Some examples of income types that require quarterly tax payments include:
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Self-employment income (freelancers, independent contractors, etc.)
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Rental income (for property owners)
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Investment income (stocks, dividends, etc.)
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Side hustle income (from platforms like Uber, Etsy, or freelance gigs)
Key Dates for Quarterly Tax Payments
Keeping track of due dates for quarterly taxes is crucial to avoid penalties. Here are the four key due dates for quarterly payments in the U.S. (these dates can vary slightly if they fall on a weekend or holiday):
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1st Quarter: April 15th (for income earned from January 1 - March 31)
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2nd Quarter: June 15th (for income earned from April 1 - May 31)
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3rd Quarter: September 15th (for income earned from June 1 - August 31)
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4th Quarter: January 15th of the following year (for income earned from September 1 - December 31)
Missing these deadlines can result in penalties, so mark them on your calendar or set up reminders!
How to Calculate Your Quarterly Taxes
Now that you know the basics, let’s dive into the next step: calculating your quarterly taxes. Here’s a step-by-step breakdown of how to do it:
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Estimate Your Total Taxable Income
Add up all sources of income (self-employment, rental, investment, etc.) for the year. Be sure to include all income you expect to earn, even if you’re unsure about certain amounts. -
Deduct Allowable Expenses
As a self-employed individual, you can deduct business-related expenses, like office supplies, travel, and software subscriptions. Make sure to keep good records of your expenses to reduce your taxable income. -
Calculate Your Self-Employment Taxes
If you're self-employed, you will also need to pay self-employment taxes, which fund Social Security and Medicare. For 2025, the self-employment tax rate is 15.3% on net earnings (12.4% for Social Security and 2.9% for Medicare). -
Apply the Tax Rate
Once you have your adjusted taxable income (after expenses), apply the appropriate federal tax rate. This can range from 10% to 37% depending on your income level. You may also have to consider state income taxes, depending on where you live. -
Divide by 4
After you calculate your total tax liability, divide the amount by four to determine your quarterly payment.
Payment Options: How to Pay Your Quarterly Taxes
You have several options for making your quarterly tax payments to the IRS:
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Online: Use the IRS Direct Pay tool to pay directly from your bank account. This is the fastest and most secure method.
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By Mail: You can mail in a check or money order along with the appropriate IRS Form 1040-ES, which is used for estimated tax payments.
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Electronic Federal Tax Payment System (EFTPS): This is a free service from the U.S. Treasury for making online payments.
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Third-Party Services: If you prefer using a tax software or accounting firm to handle your payments, many offer automated services for calculating and submitting quarterly taxes on your behalf.
Be sure to keep records of all payments for tax filing purposes.
Avoiding Penalties for Underpayment
One of the biggest mistakes taxpayers make with quarterly taxes is underpaying—either by not paying enough or not paying on time. To avoid penalties:
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Pay the Right Amount: If your income fluctuates, be sure to adjust your payments accordingly to reflect your earnings.
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Don’t Miss Deadlines: Always submit your payments by the due date. Even if you don’t have the full amount ready, try to pay at least a portion to avoid penalties.
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Use Safe Harbor Rules: If you pay 100% of your tax liability from the previous year (or 110% if your income is over $150,000), you may avoid penalties, even if you owe more this year.
Conclusion: Stay Compliant and Stress-Free
Quarterly tax payments are a crucial part of managing your finances when you're self-employed, a freelancer, or have income from sources not subject to withholding. While it may seem like a lot to manage at first, breaking it down into manageable steps and staying on top of due dates can help you avoid stress and costly penalties.
If you're still unsure about your quarterly tax obligations, it might be a good idea to consult with a tax professional who can help guide you through the process.
💡 Pro Tip: Set up reminders on your phone or calendar for each quarterly due date so you never miss a payment!
For a more in-depth breakdown of quarterly taxes, be sure to check out the video we created, where we walk you through the entire process, including how to calculate your payments step-by-step.
