Freelancers, Make Sure to Pay Quarterly Estimated Taxes to Avoid an IRS Penalty

Freelancers, Make Sure to Pay Quarterly Estimated Taxes to Avoid an IRS Penalty

When you work as a standard employee, you fill out a W4. It basically tells your employer how much to set aside for taxes every time you get paid. When you’re a freelancer, this responsibility is on you. Many freelancers don’t realize it, and it can lead to an ugly surprise in April.

When you’re a freelancer, you have to pay estimated quarterly taxes. Every quarter, you make tax payments to the IRS based on your income. You can estimate your payments using a calculator like this, but if you want to avoid a penalty, you have to be pretty accurate. You have to either pay 90% of your tax for the current year (yes, even if you don’t know what it is yet) or 100% of the tax on last year’s return to avoid an estimated tax penalty (if you make more than $150,000 for the year, that changes to 110%.

I recently discussed this on my blog, where a couple of other people chimed in to say they made the same mistake. It’s something you eventually figure out when you start freelancing, but it seems to be a common mistake for first-timers.

You don’t want to learn the hard way—not only will you owe thousands in unpaid taxes in April, you’ll also have to pay penalties on top of that, and the amount will vary depending on your income. It can be a rude awakening when you just start out. The IRS explains it in a lot more detail at the link below.

Estimated Taxes | IRS

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