Understanding Quarterly Estimated Tax Payments
What are Quarterly Estimated Tax Payments?
If you're self-employed or have income that isn't subject to withholding, you may need to make quarterly estimated tax payments to the IRS. These payments help you pay your tax liability throughout the year instead of all at once when you file your return.
Self-Employment Tax Basics
Self-employment tax consists of Social Security (12.4%) and Medicare (2.9%) taxes on your net self-employment profit, up to the Social Security wage base. As a self-employed person, you pay both the employee and employer portions (15.3% total), but you can deduct half of your SE tax as an adjustment to income.
Why Quarterly Payments Exist
The IRS requires you to pay taxes as you earn income throughout the year. If you expect to owe $1,000 or more in taxes (after subtracting withholding and credits), you generally need to make quarterly estimated payments. This helps you avoid underpayment penalties and large tax bills at year-end.
Rough Safe-Harbor Concept
To avoid underpayment penalties, you generally need to pay at least 90% of your current year's tax or 100% of your prior year's tax (110% if your AGI was over $150,000) through withholding and estimated payments. This tool uses a simplified approach of dividing your estimated tax by 4 equal quarterly payments.
Why Actual Tax Returns May Differ
This simplified planner does not account for all factors that affect your actual tax liability, including: other income sources, deductions and credits, changes in tax law, state tax differences, complex safe-harbor calculations, annualized income methods, and many other complexities. Actual tax returns may differ significantly from these estimates.
Important: This is a simplified educational planner, not full safe-harbor penalty calculations or tax/legal advice. It does not file any forms. Always consult a tax professional or use IRS Form 1040-ES worksheets for official calculations.
Frequently Asked Questions
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