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Source: istock

Here's Why Some People Pay Taxes Quarterly — And How to Do It Right

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Most people who earn a salary don't understand much about how employers take taxes out of their paychecks. All they have to do is check a box on their employment form and the employer withholds the necessary income tax. What if you don’t make your money through a traditional salary? What if you get paid through another service or by individual jobs? How do you know what amount to pay the government? If you are a freelancer or otherwise self-employed, you should know how to pay taxes quarterly.

Who has to pay quarterly taxes?

Millions of people earn money as freelancers, business owners, or through other types of self-employment. These individuals don't have withholding tax taken out of their income. They didn't have to fill out a W-2. 

The Internal Revenue Service (IRS) requires that these individuals make estimated tax payments every quarter. Making quarterly tax payments is necessary in order to avoid tax penalties or additional interest at tax time. 

Are there other reasons for making quarterly tax payments?

Quarterly tax payments aren't just for individuals who are self-employed. Other income sources might actually require you to make these payments as well. For example, substantial investment income, retirement income, windfall, or alimony income require quarterly tax payments. Any income from a reported source is subject to income tax.

What if you miss a payment date? Is there a penalty for not paying taxes quarterly?

If your estimated quarterly payments weren't quite enough or if you just didn’t pay enough through withholding, there may be penalties for these actions, though they are not as severe as one might believe. 

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Source: iStock

Like with any payments to the IRS, there is a penalty if self-employed individuals don't pay quarterly taxes throughout the year by each quarter's deadline. You will also have to pay a penalty if you underpay the estimated tax payments. 

The best way to avoid paying a penalty for quarterly taxes is to make the estimated payments on time. If the estimate is too low, the penalty will be less compared to the penalty for not paying quarterly taxes at all throughout the year.

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Source: iStock

When are quarterly tax payments due?

Quarterly estimated tax payments are due four times each year on April 15, June 15, Sept. 15, and Jan. 15. The estimated payments are usually determined by what you filed on your tax return the previous year unless your situation changed immensely. 

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Source: istock

How to make quarterly tax payments

You can pay quarterly taxes with guidance from a professional tax preparer or a tax preparation software plan. There are certain forms on the IRS website that can help you, but it can be difficult to figure out quarterly payments on your own. Downloading tax software will provide some guidance, especially if you pay the taxes you owe electronically. 

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