Everyone is required to pay taxes. If you’re self-employed or work for the man, your taxes are paid in one of two ways:
- Withholding taxes from your paycheck (W-2 workers)
- Paying quarterly taxes (1099 workers)
Traditional (W-2) employees usually don't owe quarterly taxes because taxes are withheld from their pay. However, if you are self-employed (ie: real estate agents, Uber drivers, or any freelancers or contractors), taxes are not withheld from your pay. That's right--you are responsible for paying taxes on your own!
How Do I Know If I Owe Quarterly Taxes?If you are self-employed and turning a profit, you probably owe quarterly taxes.
However, it’s possible that you’re already paying enough in taxes during the year. For example, if you have a W-2 full-time or part-time job where your taxes are already being withheld for you and you typically get a tax refund, you may not need to pay quarterly taxes.
Alternatively, you do not need to pay quarterly if you have already paid at least:
- 90% of your estimated tax owed for the current year
- 100% of the tax amount owed shown on your return for the prior year
In this case, your tax liability is already almost completely covered. Keep in mind, this is most common for people who have received a refund for the previous year’s tax and use that to pay their upcoming year’s taxes. For example, if you received a refund on your 2017 taxes in April and elected to pay it toward your 2018 taxes, you may be covered for estimated taxes, but only if that refund equals 90% of your expected 2018 taxes or was equal to 100% of your 2017 taxes owed.
What If I Didn't Earn That Much?Even if you only earned a little, you may still need to pay quarterly taxes. If you expect to owe $1,000 or more in taxes for the year (after deduction and credits), the IRS expects you to make quarterly tax payments on your business profit for that tax year. As a reminder, you are making a profit if your self-employment income is higher than your business deductions.
Put simply: if you have income that didn't have taxes withheld and you expect to owe $1,000 or more in taxes on all of that combined income in April, then you should consider paying quarterly taxes. Mike McVay, Tax Services in Pensacola Fl 850-725-5696