Estimated Tax Payments

When you're employed, your employer withholds income tax, Social Security, and Medicare from every paycheck and sends it to the IRS on your behalf. When you're freelancing, nobody does that — so you have to do it yourself through estimated tax payments.

Estimated taxes are paid four times a year on a schedule that doesn't align neatly with calendar quarters: April 15, June 15, September 15, and January 15 of the following year. Each payment covers your federal income tax and self-employment tax (Social Security + Medicare) on the income you earned during that period. Most states with income tax also require separate estimated payments on a similar schedule.

The IRS expects you to pay estimated taxes if you'll owe $1,000 or more in tax for the year after subtracting withholding and credits. There are two safe harbor methods to avoid underpayment penalties: pay at least 90% of your current year's tax liability, or pay 100% of last year's tax liability (110% if your adjusted gross income was over $150,000). Most freelancers use the prior-year safe harbor because it's predictable — you know the number in advance.

Missing estimated tax payments is one of the most common and costly freelancer mistakes. The IRS charges underpayment penalties and interest when you don't pay enough throughout the year, even if you pay your full balance at tax time in April. Many first-year freelancers are shocked by a five-figure tax bill because they spent the money they should have been setting aside quarterly. Setting up automatic transfers to a tax savings account (typically 25-30% of income) and making quarterly payments on time keeps you compliant and penalty-free.