January 20, 2023

How to calculate and make quarterly self-employment tax payments

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woman calculating quarterly self-employment tax

Calculating and making estimated quarterly self-employment tax payments is an important responsibility for self-employed individuals in the U.S. Self-employment tax covers Social Security and Medicare taxes, which are typically withheld by employers for traditional employees.

Here’s how you can calculate and make these payments:

1. Determine your net self-employment income

Calculate your total self-employment income. This includes all income you earn from your self-employed business activities. Then subtract your deductible business expenses to arrive at your net self-employment income. See our post with typical deductible business expenses for independent workers.

2. Calculate your self-employment tax

Self-employment tax consists of two parts: the Social Security tax and the Medicare tax. For the Social Security portion, multiply your net self-employment income by 12.4%. However, only a portion of your income may be subject to this tax, as there is a Social Security wage base limit. See our post on self-employment taxes for more information on the limits or check out the IRS website.

For the Medicare portion, multiply your net self-employment income by 2.9%. Then add these two amounts together to get your total self-employment tax.

3. Calculate your estimated income tax

In addition to self-employment tax, you must also pay income tax on your net self-employment income. Calculate your estimated income tax based on your total taxable income, which includes your self-employment income and any other sources of income. Remember to take into account any deductions and tax credits that apply to you.

4. Determine your total estimated tax liability

Add your self-employment tax and estimated income tax together to find your total estimated tax liability.

5. Estimate your quarterly self-employment tax payments

Divide your total estimated tax liability by four to determine the amount you should pay each quarter.

6. Make quarterly payments

You have four payment due dates each year: April 15, June 15, September 15, and January 15 of the following year (or the next business day if it falls on a weekend or holiday). These serve as your quarterly self-employment tax payments.

You can make payments through various methods, including:

  • Electronic Federal Tax Payment System (EFTPS)
  • IRS Direct Pay
  • Check or money order with the payment voucher (Form 1040-ES).

7. Keep records

It’s crucial to maintain accurate records of your income, expenses, and tax payments. This will help you during tax-filing season and if you’re ever audited.

8. Adjust your payments as needed

If your income fluctuates throughout the year or you experience significant changes in your deductions, be prepared to adjust your estimated payments accordingly.

It’s essential to stay up-to-date with the latest IRS guidelines and tax rates, as they may change from year to year. Consider consulting a tax professional or using tax software to ensure accurate calculations and compliance with tax laws. Additionally, keeping organized financial records will make the process smoother and help you avoid potential issues with the IRS.