When you work for yourself, nobody withholds taxes from your pay, so the IRS expects you to pay as you go through quarterly estimated taxes. If you're a freelancer, consultant, gig worker or business owner, here's what to know.
Who needs to pay? Generally, you need to make estimated payments if you expect to owe $1,000 or more in federal tax for the year after withholding and refundable credits. New York has its own estimated tax requirement for state income tax, with the same calendar-year due dates.
What do the payments cover? Your federal income tax plus self-employment tax, which is Social Security and Medicare tax for people who work for themselves. Self-employment tax generally applies once your net earnings from self-employment reach $400, even if your income tax is small. That often surprises new freelancers.
When are they due? For 2027 the federal due dates are April 15, June 15 and September 15, 2027, and January 18, 2028. The last one moves from January 15 because that day is a Saturday and Monday, January 17, is Martin Luther King Jr. Day. The payment periods aren't equal quarters, so put these dates on your calendar.
How much should you pay? You can generally avoid the underpayment penalty if your withholding and estimated payments add up to the smaller of 90% of this year's tax or 100% of last year's tax. If last year's adjusted gross income was over $150,000 ($75,000 if married filing separately), use 110% instead of 100%. Farmers and fishermen have special rules. If your income comes in unevenly, the annualized income method may lower some payments.
How do you pay? Use IRS Direct Pay, EFTPS or your IRS Online Account. New York payments can be made through your NY State Online Services account.
Tips: Set aside part of every payment you receive, keep your books current so you know your real profit, and update your estimates if your income changes.
Not sure what to pay? Book a free consultation or call 516-493-2967 and we'll work out a plan.
This article is general information, not tax advice. Contact Ray to discuss your situation.
