Unfortunately for some independent contractors, tax filing isn’t a once-a-year headache. In fact, you may have to make estimated tax payments if you expect to owe at least $1,000 in taxes each year. That isn’t a high threshold either, considering your 15.3% self-employment tax rate.
Missing Your Quarterly Tax Payment Date
The IRS may inform you that you’re required to pay quarterly taxes, either electronically or via snail mail, before the deadline. However, the IRS is more likely to tell you after the deadline.
If you made more than $1,000 in taxes by the first quarterly deadline, or you know you’ll be taxed more than $250 per quarter, you should make estimated payments. You can calculate quarterly taxes using a calculator, fill out the IRS Form 1040-ES, and pay your taxes by:
- April 15th
- June 15th
- September 15th
- January 15th
If you skipped an estimated tax payment, don’t wait until the next quarter to make it up. The underpayment penalty is based on how much you owe and how long it took you before you paid the amount in full. Once the due date passes, the IRS will dock 0.5% of the amount you owe.
For each partial or full month you don’t pay, the penalty increases, so pay your taxes ASAP.
How to Never Miss a Quarterly Tax Payment Due Date
Missing one IRS payment isn’t the end of the world, but you don’t want to make it a habit. Here’s how you can pay your tax burden on time every single quarter to keep penalties at bay.
1. Organize Your Records.
Most self-employed workers aren’t used to keeping their receipts and tracking their spending, but without this crucial habit, you’ll dread quarterly tax filing. For this reason, it’s critical to use record-keeping software to organize your records and avoid paying a pretty penny.
If you keep all of your records online or within a program, you can easily search for an expense you’ll need at a moment’s notice. This comes in handy if you’re audited by the IRS.
2. Establish a Tax-Paying Schedule.
The quarterly tax payment deadlines are the same every year, but if the due date falls on a weekend, it moves up to the next weekday. With that in mind, some deadlines come up faster than others, like the June 15th due date, which only tracks an April 1st-May 31st earning period.
By organizing your records, you’ll know exactly what you’ll deliver to the IRS before each due date. However, to know what you’re paying, you’ll need to accurately predict your tax rate.
3. Learn How to Calculate Taxes.
The IRS still counts underpayment as a “missed deadline,” so you can’t just send a random amount to satisfy the IRS. To accurately predict your first April quarterly payment, take what you earned over the past year, divide it by 4, and use the IRS table to determine what you owe.
As the year progresses, you may need to adjust your quarterly payments to ensure you aren’t underpaying. If you are, use as many deductions as possible to avoid penalties at all costs.
4. Know the Safe Harbor Rule.
Sometimes life gets in the way, and you miss a deadline, or you don’t have enough cash flow to pay your installments in full. Either way, the safe harbor rule can save you from high fees if you pay the same quarterly tax amount as last year as long as you didn’t underpay the year prior.
While you’ll still need to pay the amount you owe, you won’t be charged anything else on top of it. Keep in mind that the safe harbor rule threshold keeps increasing the more taxes you owe.