Do Self-Employed Individuals Need to Pay Estimated Taxes Quarterly?

by | May 15, 2025 | Individual Taxes, Self-Employment & Business

Here’s what HIVE AI had to say about “Do self-employed individuals need to pay estimated taxes quarterly?”:

Yes, self-employed individuals generally need to pay federal income taxes as they earn income throughout the year. To the extent these taxes are not withheld, a taxpayer must pay estimated income tax on a quarterly basis. Notice 2019–25

Who Needs to Pay Estimated Taxes

Generally, you must make estimated tax payments for the current tax year if both of the following apply:

  • You expect to owe at least $1,000 in tax for the current tax year after subtracting your withholding and refundable credits.
  • You expect your withholding and refundable credits to be less than the smaller of:
    • 90% of the tax to be shown on your current year’s tax return, or
    • 100% of the tax shown on your prior year’s tax return (your prior year tax return must cover all 12 months). IRS.gov FAQ

This requirement applies to gig workers, sole proprietors, retirees, partners and S corporation shareholders who generally must make estimated tax payments if they expect to have a tax liability of $1,000 or more when they file their return. IRS Newsroom – IR-2023-165 – IRS reminds gig workers, self-employed and others of Sept. 15 third quarter estimated tax payment deadline

Every individual (other than a nonresident alien individual) having net earnings from self-employment of $400 or more for the taxable year is required to make a return with respect to the self-employment tax imposed by chapter 2. IRC § 6017

What Taxes Are Included in Estimated Payments

Estimated tax is used to pay not only income tax, but other taxes such as self-employment tax and alternative minimum tax. IRS Newsroom – IR-2022-101 – National Small Business Week: Making estimated tax payments electronically is fast and easy A taxpayer’s self-employment income is subject to self-employment tax, which is assessed and collected as part of the income tax, must be included in computing any income tax deficiency or overpayment for the applicable tax period, and must be taken into account for estimated tax purposes. Dawson U.S. Tax Court Opinions: Joseph DeCrescenzo Dawson U.S. Tax Court Opinions: Joseph DeCrescenzo

For taxable years beginning after December 31, 1966, the term “estimated tax” includes the amount which an individual estimates as the amount of self-employment tax imposed by chapter 2 for the taxable year. Thus, individuals upon whom self-employment tax is imposed by section 1401 must make a declaration of estimated tax if they meet the requirements. Tresuary Reg. 1.6017-1

When Estimated Tax Payments Are Due

Section 6654 provides that, in the case of an individual, estimated income tax is required to be paid in four installments and the amount of any required installment is 25 percent of the required annual payment. Notice 2019–25

Generally, payments should be made quarterly and are due April 15th, June 15th, and September 15th of the current year in addition to January 15th of the following year. IRS IRM 5.8.7 Return, Terminate, Withdraw, and Reject Processing

The due dates of the required estimated payments for a calendar year taxpayer are April 15, June 15, and September 15 of the calendar year in question and January 15 of the following year. Dawson U.S. Tax Court Opinions: Lawrence Leroy Henry

How to Calculate Estimated Tax Payments

Generally, under section 6654(d)(1)(B), the required annual payment is the lesser of (i) 90 percent of the tax shown on the return for the taxable year or (ii) 100 percent of the tax shown on the taxpayer’s return for the preceding taxable year (110 percent if the individual’s adjusted gross income on the previous year’s return exceeded $150,000), so long as the preceding taxable year was a full twelve months long. Notice 2019–25

The amount of the estimated tax payment is generally based on the net taxable income, including the gross income earned, less allowable deductions. This includes depreciation, home office expenses, automobile expenses, and depletion from carrying on a trade or business. IRS IRM 5.8.7 Return, Terminate, Withdraw, and Reject Processing

For the purpose of determining the estimated tax, the amount of gross income which the taxpayer can reasonably expect to receive or accrue, and the amount of the estimated allowable deductions and credits to be taken into account in computing the amount of estimated tax, shall be determined upon the basis of the facts and circumstances existing at the time prescribed for determining the estimated tax, as well as those reasonably to be anticipated for the taxable year. If the taxpayer is employed at the date prescribed for making an estimated tax payment at a given wage or salary, the taxpayer should presume, in the absence of circumstances indicating the contrary, that such employment will continue to the end of the taxable year at the wage or salary received by the taxpayer as of such date. Tresuary Reg. 1.6654-5

Penalties for Not Paying Estimated Taxes

If a taxpayer doesn’t pay enough tax through withholding and estimated tax payments, they may be charged a penalty. They also may be charged a penalty if estimated tax payments are late, even if the taxpayer is due a refund when they file their tax return. However, generally, paying quarterly estimated taxes will lessen or even eliminate any penalties. IRS Newsroom – IR-2022-101 – National Small Business Week: Making estimated tax payments electronically is fast and easy

Taxpayers are liable for an addition to tax for failure to pay estimated taxes where prepayments of tax, either through withholding or by making estimated quarterly payments during the year, do not equal the lesser of 90% of the tax shown for the current taxable year or 100% of the tax shown for the previous taxable year. An exception applies if the tax due for the year in issue is less than $1,000, the individual had no tax liability for the preceding year, or a waiver applies. Dawson U.S. Tax Court Opinions: Austin Danne Hardin Dawson U.S. Tax Court Opinions: Austin Danne Hardin

Exceptions to Estimated Tax Requirements

Under section 6654(e)(1), an addition to tax will not be imposed on an individual taxpayer if the taxpayer owes less than $1,000 in tax, after subtracting tax withheld on wages. Under section 6654(e)(2), an individual will not be subject to an addition to tax if the individual did not have any tax liability for the previous year, the preceding taxable year was 12 months, and the individual was a citizen or resident of the United States throughout the preceding tax year. Notice 2019–25

The narrow exceptions to section 6654(a) provide that an addition to tax will not be imposed if the Commissioner determines that: (1) by reason of casualty, disaster, or unusual circumstances the addition would be inequitable or unfair; or (2) the taxpayer retired (after reaching age 62) or became disabled in either the taxable year for which estimated tax payments were required or in the taxable year preceding such year and such underpayment was due to reasonable cause and not willful neglect. Dawson U.S. Tax Court Opinions: Austin Danne Hardin

How to Make Estimated Tax Payments

The Internal Revenue Service reminds all businesses, including self-employed and gig workers, to make estimated tax payments quarterly, and that making them electronically is fast, easy and safe. IRS Newsroom – IR-2022-101 – National Small Business Week: Making estimated tax payments electronically is fast and easy

A payment of estimated tax by an individual shall be determined on Form 1040-ES. Tresuary Reg. 1.6654-5

In conclusion, self-employed individuals with net earnings of $400 or more generally need to pay quarterly estimated taxes to avoid penalties. These payments should include both income tax and self-employment tax, and are typically due on April 15, June 15, September 15, and January 15 of the following year.

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