If you earn 1099 income from freelancing, side jobs, or an independent business, you may need to pay estimated quarterly taxes to the IRS. This ensures you are prepaying your tax obligation throughout the year rather than getting hit with a large bill when you file your return.
Paying quarterly 1099 taxes involves determining if you meet the requirements, calculating how much you owe each quarter, submitting the proper forms, and making timely payments. We will explain how quarterly taxes work and the steps you should follow to properly pay estimated taxes on your 1099 income.
- Paying quarterly estimated taxes covers your tax liability throughout the year and avoids a big bill on April 15.
- You generally have to make estimated payments if you owe $1,000 or more, and your withholding does not cover at least 90% of what you owe.
- Use last year’s return and income projections to estimate your total tax for the year. Divide this amount by four for each quarterly payment.
- Payments can be made electronically, by mail, through your bank, or using IRS-approved tax software.
- If your income changes, reassess your payments to avoid underpayment penalties.
- Be sure to file Form 1040-ES with the IRS each quarter to declare your estimated payments.
What Are Quarterly Estimated Taxes?
Quarterly estimated tax payments are advance payments on your expected annual tax liability. They are paid throughout the year by individuals who earn income that is not subject to withholding, such as:
- 1099 income from freelancing, consulting, or contract work
- Income from side businesses or self-employment
- Interest or dividend income
- Rental property income
- Unemployment income
- Other types of miscellaneous income
Since taxes are not withheld from these income sources like they are with a W-2 job, you need to pay estimated taxes directly to the IRS four times per year. This ensures you don’t get hit with a big tax bill when you file your return.
The IRS requires quarterly estimated tax payments if you expect to owe at least $1,000 when you file your tax return. The payments are due on the following dates:
- April 18 – First quarter payment due for Jan 1 to March 31
- June 15 – Second quarter payment due for April 1 to May 31
- September 15 – Third quarter payment due for June 1 to August 31
- January 17 (of the next year) – Fourth quarter payment due for Sept 1 to Dec 31
Essentially, you’re prepaying your tax bill in four installments rather than paying it all at once on April 15 of the following year.
Here is How To Pay Quarterly Taxes for 1099 Income
Step 1: Calculate what you owe
Form 1040-ES will ask you to use your expected adjusted gross income (AGI) to estimate your owed tax. If you expect to earn a similar amount to last year, your AGI from last year is a good starting point to project what you’ll make in the upcoming year. Adjust it up or down depending on how much you expect to make this year. You’re just trying to give it your best guess. Alternatively, try one of the many 1099 forms online to ease your work.
Once you have your expected AGI, run that number through the appropriate tax rate schedule. This will give you your owed tax. Then, divide your owed tax by four to find what you owe for each quarter.
When calculating what you owe each quarter, remember that you need to pay 25 percent of the total you expect to owe in a year instead of estimating what you’ll owe each quarter. This can be tricky for self-employed taxpayers with income that varies throughout the year.
Step 2: Mail in your Form 1040-ES
You can find the correct address on the IRS website.
Step 3: Choose a payment method
You can select a payment method on the IRS website. You can also mail your check with Form 1040-ES.
What Happens If I Don’t Pay Quarterly Taxes and Wait Until April?
If you owe more than $1,000 in taxes and don’t pay taxes quarterly, you’ll get an underpayment penalty from the IRS.
However, you may be able to avoid the penalty if either of the following applies to you:
- You didn’t pay due to a disaster or an “unusual circumstance.”
- You retired or became disabled during the tax year.
Learn how to declare these waivers on page two of the instructions for Form 2210.
Who Has to Pay Estimated Taxes?
In general, you must pay quarterly estimated taxes if both of the following apply:
- You expect to owe at least $1,000 in taxes for the year
- You expect your withholding and credits to be less than the smaller of 90% of your total tax for the current year or 100% of the tax on your prior year’s return (110% if your AGI was over $150,000)
This means that even if you only earn a small amount of 1099 income, you may still need to pay quarterly estimated taxes if the combination of that income and your withholding results in you owing $1,000 or more.
For example, let’s say you have a full-time W-2 job where your employer withholds $500 per month in taxes. You also do some freelance work on the side, earning $10,000 of 1099 income.
If your total tax liability for the year is $3,000, but only $2,000 was withheld from your W-2 job, you would owe $1,000 at tax time. Since that’s over the $1,000 threshold, you should pay quarterly estimated taxes on your freelance income.
On the other hand, you may not need to pay quarterly taxes if:
- You will owe less than $1,000 for the year after withholdings and credits.
- You will have paid at least 90% of your total tax liability through withholding.
- Your withholding equals 100% (or 110%) of your prior year’s tax liability.
So, in cases where your withholding covers most of your tax obligation, quarterly payments may not be required.
How Are Quarterly Payments Calculated?
Figuring out how much to pay each quarter can be tricky. Here are some tips for estimating your quarterly tax payments:
- Start with last year’s return – Your total tax liability from last year’s return is a good starting point. Adjust up or down based on expected changes in income and deductions.
- Account for withholding – Reduce your total estimated tax owed by any amount you expect to be withheld from a W-2 job. Withholding can offset some or all of your quarterly payment needs.
- Divide by four – Take your total estimated tax and divide by four. This is the amount to pay each quarter. Make sure you divide by four, not by each quarter’s income.
- Use the annualized installment method (Form 2210) – If your income varies widely each quarter, this alternate method may yield more accurate payments.
- Check each quarter – Reassess your situation every quarter. If your income decreases, you can reduce your next payment. If it increases, increase the next payment.
- Claim prior year’s refund – If you receive a refund when you file your return, you can apply some or all of it to the next year’s estimated taxes.
The IRS provides a worksheet and calculator to help determine your quarterly payments. Tax software can also do the calculations for you.
How Do I Submit Estimated Tax Payments?
You have several options for making quarterly estimated tax payments to the IRS:
- Pay online – Use the IRS Direct Pay system to make payments directly from your bank account. You’ll need your bank routing and account numbers.
- Pay by debit or credit card – The IRS allows online payments through third-party services. Fees apply based on the service provider.
- Pay by phone – Call 1-800-555-3453 to make a payment using the EFTPS system. You’ll need your bank details.
- Mail a payment – Send a check or money order along with a voucher from Form 1040-ES. Mail to the appropriate IRS address for your state.
- Pay through tax software – Programs like TurboTax allow you to calculate and pay your quarterly taxes seamlessly.
Keep records of your payments. Dates and amounts paid will be needed when you file your tax return. The IRS will compare them to your total tax for the year.
What If I Miss a Quarterly Payment?
If you fail to make your quarterly payments on time or don’t pay enough, you may be subject to penalties and interest charges. However, the IRS offers some relief in certain circumstances:
- Pay at least 90% of your total tax – As long as you pay at least 90% of what you end up owing for the full year, you can avoid penalties. Any balance due can be paid when you file your return.
- Qualify for an exception – Penalty waivers may apply in case of casualty, disaster, or other unusual circumstances. Certain retired or disabled individuals may also avoid penalties.
- Use the annualized installment method – This method allows you to have lower payments in some quarters and higher payments in others, as long as it evens out by the end of the year.
- Apply overpayment from the previous year – If you are due a refund when you file your tax return, you can apply that overpayment to offset any underpayment of quarterly taxes.
If no exceptions apply and you pay less than your required estimated taxes, you will generally owe a penalty based on IRS interest rates and time periods. The sooner you get on track with payments, the lower the penalty.
What About Self-Employment Taxes?
When you have net earnings from self-employment, you also have to account for self-employment tax as part of your estimated payments.
Self-employment tax consists of Social Security and Medicare taxes. It is assessed at a rate of 15.3% of your net self-employment income.
To calculate how much self-employment tax you might owe:
- Estimate your expected net earnings from self-employment for the year.
- Multiply that amount by 0.9235 to account for the deduction.
- Take the result and multiply it by 15.3% to estimate your self-employment tax.
- Divide this amount by 4 to determine how much to pay each quarter.
Make sure to include any expected self-employment taxes when determining your overall estimated tax payments. The Schedule SE form is used to report your actual self-employment tax when you file your return.
When Do I Need to File Estimated Tax Forms?
Along with making quarterly payments, you also need to submit declaration forms stating your total expected income and estimated payments.
- IRS sent “Child Tax Credit” checks to ineligible families and now asks them to pay the money back
- Tax return to the IRS, seven possible reasons why you still haven’t received your refund
- IRS Reminds Taxpayers to Report Informal Income, Virtual Currency Transactions, and Foreign-Source Income and Assets
Use IRS Form 1040-ES to file your quarterly declaration. It includes the payment vouchers needed to submit with your checks or electronic payments.
The declaration deadline schedule is as follows:
- April 18 – First quarter declaration due
- June 15 – Second quarter declaration due
- September 15 – Third quarter declaration due
- January 17 – Fourth quarter declaration due
While Form 1040-ES can be physically mailed, most taxpayers file it electronically through IRS e-file programs and tax preparation software. The e-filed declaration information gets automatically reported to the IRS.
Can I Just Pay Once a Year?
Some taxpayers wonder why they need to pay every quarter rather than just once a year. There are a few reasons for the quarterly requirement:
- It prevents a big outstanding tax liability from accumulating. By paying as you earn, you avoid owing thousands of dollars on April 15.
- It allows the government to access the funds sooner. This provides more stability than waiting for annual payments.
- It helps keep taxpayers current on their tax obligations. Waiting until year-end can lead to errors or overlooked deductions.
- For some, it may ease budgeting by spreading payments out. A quarterly payment can be easier to manage than one large lump sum.
While quarterly payments provide benefits, the IRS does give some leeway on when you pay during the year. As long as you’ve paid 90% of what you owe by December 31, you can avoid penalties. Technically, you could make just one payment by January 15, though this approach has risks.
What If My Income Changes During the Year?
Fluctuations in income are common among freelancers and small business owners. When your income changes, you should reassess your quarterly payments so they align with your current situation.
If your income decreases significantly, you can reduce your next quarterly payment. Just be sure to pay at least 90% of your total tax for the year.
If your income increases, you should raise your next payment to compensate. This helps avoid penalties for underpayment.
Tax software and worksheets make it easy to recalculate your estimated payments when income changes. The IRS also offers an annualized installment method using Form 2210 that adjusts each quarter based on actual income.
The main thing is to monitor your tax situation so your payments stay in line with your liability. Being flexible allows you to respond to financial changes.
Are Estimated Payments Required Every Year?
Quarterly tax payments are assessed on a year-to-year basis. Just because you need to pay them one year doesn’t mean you have to continue paying them indefinitely.
Before each tax season, evaluate your situation to determine if estimated payments are required for that year based on your projected income and withholding.
For example, say you paid quarterly taxes in 2022 due to freelance income. But in 2023, you don’t plan to freelance and will only have W-2 income. Your withholding should cover your tax liability, so estimated payments would not be required for 2023.
Common Questions About Quarterly Taxes
Do I have to make all four quarterly payments?
You can skip quarterly payments but must pay at least 90% of your total tax by December 31 to avoid penalties. Making all four equal payments on the quarterly due dates ensures you meet the threshold.
How do I report my quarterly payments when I file my tax return?
Your total estimated tax paid for the year is reported on Form 1040 Schedule 3. The IRS will reconcile your payments with the total tax owed.
Can I deduct my quarterly payments as a business expense?
No, tax payments cannot be deducted as a business expense. Quarterly payments are a way to prepay your expected tax liability.
Do I need to make estimated state tax payments, too?
Many states also require quarterly estimated payments for state income tax. Check your state’s rules to determine if you need to make separate state-estimated payments.
Can I skip a payment if I’m short on cash?
You can skip a payment, but it’s unwise unless you will still reach the 90% threshold by year-end. Underpaying will lead to penalties. Try to prioritize making quarterly payments on time.
What if I make too high of a quarterly payment?
There is no penalty for overpaying. Any amount paid above your total tax liability will be refunded to you or applied to your next year’s taxes.
Paying taxes every quarter may seem tedious. But staying current on your obligations will save you headaches and penalties down the road. With some planning and discipline, you can simplify the quarterly filing process.
Frequently Asked Questions
Do I have to pay estimated quarterly taxes on my side business income?
If you earn income through a side business that is not subject to withholding, you likely need to pay estimated quarterly taxes. The requirement kicks in if you expect to owe at least $1,000 in taxes and your withholding does not cover at least 90% of your total tax liability.
When are quarterly estimated taxes due each year?
Estimated taxes are paid in four installments on the following dates: April 15, June 15, September 15, and January 15 (of the next year). Pay attention to weekends and holidays – due dates sometimes shift slightly if they fall on a Saturday, Sunday, or holiday.
How do I calculate my quarterly tax payment amount?
Add up your estimated total tax owed for the year, factoring in business income as well as any W-2 withholding. Divide this estimated yearly tax by four to determine your quarterly payment amounts. The IRS provides worksheets and calculators to help estimate what you owe.
What forms do I need to file for quarterly estimated taxes?
You need to submit IRS Form 1040-ES each quarter to report your estimated income and payments. The form includes payment vouchers you send in along with each quarterly check or electronic payment.
What if I didn’t pay enough in quarterly estimated taxes?
If you do not pay at least 90% of your total tax liability through quarterly payments, you may face underpayment penalties from the IRS. There are some exceptions that can exempt you from penalties for low or late payments.
Should I save receipts from my estimated tax payments?
Yes, save all records showing that you made your quarterly payments. The dates and amounts will be reported on your tax return, so you want documentation in case of any discrepancies or IRS questions.
Can I deduct my estimated tax payments as a business expense?
No, estimated tax payments cannot be deducted as a business expense. Quarterly estimated payments apply toward your personal income tax liability.
Do I need to pay estimated state taxes, too?
Most states also require quarterly estimated tax payments if you owe more than a certain amount of state income tax. Check with your state’s tax agency for specific rules and forms regarding state-estimated payments.
What if I overpay my estimated quarterly taxes?
There is no penalty for overpaying your estimated taxes. Any amount you overpay will either be refunded to you or applied to your estimated tax for the following year when you file your tax return.
Can I pay my entire yearly tax bill in one payment instead of quarterly?
You can choose to make just one yearly payment, but it’s due on January 15, and you need to have paid at least 90% of your total tax liability to avoid penalties. Making four quarterly payments helps ensure you meet that 90% threshold.