Wait…I have to pay taxes in January?

The deadline for last year’s final quarterly estimated tax payment is sneaking up around the corner. Here’s a quick run-down from our friends at Painless1099 on everything you need to know about quarterlies and making sure you’re squared away for tax day.

Paying taxes in January — sounds crazy, right? This is the ugly truth for freelancers, on-demand workers, or anyone else earning 1099 income. If you earn self-employment income, you’re expected to stroke Uncle Sam a check four times a year for quarterly estimated tax payments. Not completely sure what we’re talking about? Don’t worry, you’re not alone — over two thirds of 1099ers don’t understand their self-employment tax obligation. With the next quarterly estimated tax payment deadline sneaking up around the corner, January 16th to be exact, we put together a quick run-down on quarterly estimated tax payments to answer any questions you may have about paying your quarterlies.

Who has to pay?

Well, pretty much everybody — unless this is the first year that you’ve earned 1099 income. Here in the United States we use what’s called a “pay-as-you-go” system for collecting income tax. This means that you’re expected to pay taxes on the income that you earn throughout the year. This is something that is often overlooked when working a W-2 job because employers are required to automatically withhold money for taxes and pay the IRS on your behalf. When you’re a self-employed, however, there is no one there to withhold your money for you or pay the IRS — it’s all on you to make sure quarterly estimated tax obligations are covered. There are a few exceptions, but if you’re expecting to owe over $1,000 in self-employment taxes this year, you need to be paying quarterly estimated taxes. Even if this is your first year earning 1099 income, it’s still a good idea to pay quarterly taxes so you don’t end up with a large payment due on Tax Day.

If you need help calculating whether or not you’ll owe over $1,000 in taxes this year, or if you’re looking for an easy way to calculate your tax obligation for this year — check out the Painless1099 Income Tax Calculator.

Do I HAVE to pay them?

Neglecting to pay quarterly estimated taxes can get expensive. If you do miss a payment, you’ll be charged a penalty and have to pay interest on the unpaid balance of the missed payment. While missing one payment may not break the bank, missing multiple quarterly payments can add up quickly. The last thing you want is to get to Tax Day only to be blindsided by a big bill from the IRS.

How much should I expect to pay?

There are a few ways to calculate how much you should be paying and to actually pay your quarterly payments. The method that you should use depends on a few things about your work.

If you earned 1099 income and paid self-employment taxes last year, you can base your quarterly payments off of the amount you paid last year. The general rule of thumb to avoid underpayment penalties is to make four equal payments that total 100% of your tax obligation from last year. If your adjusted gross income was over $150,000 (or $75,000 for those who are married and filing separate returns last year), then you need to pay the smaller of 90% of your expected tax for the current year or 110% of you owed in taxes last year to satisfy the safe-harbor requirement and avoid an underpayment penalty. For anyone who is unsure of how much they need to pay to avoid underpayment penalties — use the IRS Form 1040-ES to calculate your exact quarterly estimated tax obligation.

Folks who experience sporadic income can use the annualized payment method. This simply means that you pay the IRS a percentage of that particular quarter’s earnings instead of a flat rate for each quarter of the year. To use the annualized payment method, you’ll want to fill out the IRS Form 2210.

What if I overestimate or underestimate?

No worries — the IRS will be sure to let you know. If you’re lucky enough to have made more money than what you estimated from the year prior, you’ll get a note from the IRS letting you know that you underpaid for the year. If you have an off-year and overestimated your quarterly payments, you will receive a refund at the end of the year or you can just apply that amount to the next year’s tax obligation.

When are quarterly tax payments due?

Remember to mark these dates on your calendar to avoid having to pay those pesky penalties from the IRS.

● 1st payment………………………. April 18, 2017

● 2nd payment………………………. June 15, 2017

● 3rd payment………………………. Sept. 15, 2017

● 4th payment………………………. Jan. 16, 2018*

* You do not have to make the payment due January 16, 2018, if you file your 2017 tax return by January 31, 2018, and pay the entire balance due with your return.

How do I get these payments to the IRS?

While the IRS provides multiple methods for making your quarterly estimated tax payments, we suggest taking advantage of Direct Pay. This option allows you to make your payment right from the IRS Direct Pay page via a direct transfer from your bank. You can also choose to pay by check, cash, money order, wire transfer, or by using other online payment systems — however these options generally have fees and require more work to complete process and confirm your payment with the IRS.

For more information, check out our guides on making federal and state quarterly tax payments.

How can I make handling quarterlies easier?

Having to pay the government four times a year sucks, there’s no way around that. But that doesn’t mean that the process of planning for and managing that obligation has to be just as agonizing. Creating a system for keeping up with estimated taxes can save you a ton of stress and energy. Not sure what that looks like? Fear not, we’ve already done all the heavy lifting. Painless1099’s smart bank accounts automatically separate the money you need to save for taxes each time you earn 1099 income — what’s left over, or safe to spend, is then transferred directly to your personal checking account. When quarterlies come around, Painless1099 can automatically remit payments to the IRS on your behalf. It works just like W2 tax withholding, but is designed for your self-employment income. You should be focusing your time on doing more of the work you love, not estimated taxes.