How to Set Up Quarterly Tax Payments for Self Employed
Understand and manage your quarterly tax responsibilities as a self-employed individual. Learn the process to ensure timely payments and tax compliance.
Quarterly estimated taxes are a system for self-employed individuals to pay income tax and self-employment taxes throughout the year. Since no employer withholds taxes from self-employment income, individuals are responsible for these regular payments. This “pay-as-you-go” approach ensures tax obligations are met as income is earned, covering federal income tax, Social Security, and Medicare contributions.
Who Needs to Pay Estimated Taxes?
Individuals generally need to make estimated tax payments if they expect to owe at least $1,000 in tax for the year. This applies to income not subject to withholding, such as earnings from self-employment, independent contracting, or gig work. Even those with a traditional W-2 job might need to pay estimated taxes if they also have significant self-employment income.
The IRS mandates that taxes be paid as income is earned. This typically means self-employed individuals, including sole proprietors, partners, and S corporation shareholders, must make these payments. If an individual’s tax liability was more than zero in the prior year, they may also need to pay estimated taxes for the current year.
Calculating Your Quarterly Tax Payments
Determining the amount of each quarterly payment involves estimating both gross income and deductible expenses for the entire tax year. IRS Form 1040-ES, Estimated Tax for Individuals, includes a detailed worksheet to help calculate the estimated annual tax liability.
The process begins with estimating adjusted gross income (AGI), which includes all self-employment income and any other income sources not subject to withholding. From this estimated AGI, applicable deductions, whether standard or itemized, are subtracted to determine taxable income. Income tax is then calculated based on the estimated taxable income using the current tax rates.
A significant component for self-employed individuals is the self-employment (SE) tax, which covers Social Security and Medicare contributions. This tax is calculated on 92.35% of net earnings from self-employment. The self-employment tax rate is 15.3%, consisting of 12.4% for Social Security and 2.9% for Medicare. For 2025, the Social Security portion applies to earnings up to $176,100, while the Medicare portion has no earnings limit.
After calculating both income tax and self-employment tax, any applicable tax credits are applied to reduce the total tax liability. Any estimated tax withheld from other jobs, such as a W-2 position, is also factored in to determine the remaining tax due. The total estimated annual tax liability is then typically divided by four to determine the amount for each quarterly payment.
Quarterly Payment Deadlines
Estimated tax payments are due throughout the year, following a specific schedule set by the IRS. These dates do not align with calendar quarters. If any due date falls on a weekend or federal holiday, the deadline shifts to the next business day.
First payment (January 1 – March 31 income): April 15
Second payment (April 1 – May 31 income): June 15
Third payment (June 1 – August 31 income): September 15
Fourth payment (September 1 – December 31 income): January 15 of the following year
Methods for Making Estimated Tax Payments
Once the estimated payment amount is calculated, several methods are available for submitting funds to the IRS. One convenient option is IRS Direct Pay, allowing direct transfers from a checking or savings account without additional fees.
Another electronic method is the Electronic Federal Tax Payment System (EFTPS), which requires prior enrollment but enables scheduling payments up to a year in advance. Payments can also be made by mail using a check or money order along with a payment voucher from Form 1040-ES.
For those who prefer digital options, payments can be made via authorized third-party payment processors using a debit or credit card, though these services typically involve processing fees. Some tax software programs facilitate direct payment of estimated taxes. Taxpayers can also use their IRS online account to make payments and view their payment history.
Adjusting Payments and Understanding Penalties
Managing estimated tax payments throughout the year allows for adjustments if income or deductions change significantly. If an initial estimate proves inaccurate due to unforeseen income fluctuations or new deductions, subsequent quarterly payments can be revised upward or downward.
Failure to pay enough tax through withholding or estimated payments can result in an underpayment penalty. This penalty is assessed if the amount owed at year-end is $1,000 or more. To avoid this, taxpayers often rely on “safe harbor” rules. These rules state that no penalty will be assessed if total payments made during the year meet at least 90% of the current year’s tax liability or 100% of the prior year’s tax liability. For higher-income taxpayers with an adjusted gross income exceeding $150,000 in the prior year, the safe harbor rule requires paying 110% of the prior year’s tax.
For individuals with fluctuating income, the annualized income method offers an alternative to equal quarterly payments. This method allows taxpayers to adjust their payments to align with when income is earned throughout the year, potentially reducing or eliminating underpayment penalties from uneven earnings. Taxpayers use Form 2210, Underpayment of Estimated Tax by Individuals, Estates, and Trusts, to calculate penalties or to utilize the annualized income method.