The federal income taxes are paid in two main ways. You either estimate the tax you owe for every quarter and pay the IRS or let your employer withhold a portion of your income when processing payroll.
If you’re self-employed, you will need to estimate taxes as there is no employer to withhold and handle your federal income taxes on your behalf. It’s a lot more convenient for employees working for an employer to let their employers withhold income taxes every paycheck. Whether withholding taxes is something that you prefer or not, you are bound to, either way, depending on how you earn your income. All self-employed individuals must estimate and pay their taxes to the Internal Revenue Service.
Calculating quarterly tax payments
If you earn income that’s not subject to federal income tax withholding, you must figure out estimated taxes and pay them for every quarter. For example, the taxes for January 1st through March 31st must be paid by April 15. You can use Form 1040-ES to estimate your taxes.
It’s also an easy way to handle taxes once you get the hang of it. If you earn a steady income, it’s highly probable that you’ll owe the same amount of tax for every quarter. That’s, of course, assuming that there won’t be a change of major life events like having a baby or getting married, which reduces your tax liability.
Figure out your quarterly estimated tax payment by utilizing Form 1040-ES. There are many ways you can pay quarterly estimated tax payments, including online channels using your credit card or bank account through bank transfer. Regardless of how you want to pay your quarterly federal estimated taxes, it’s okay as long as you pay. Make sure that you don’t owe any tax for the quarter as there are underpayment penalties. If you end up paying less than 90 percent of your liability for the quarter, you’ll be hit with penalties – even if you pay way more the following quarter.
The Internal Revenue Service is very clear about this and one of the best things you can do every quarter when the taxes come is paying slightly over what you estimated to ensure you don’t pay penalties. Since you’ll get any excess amount paid in your tax refund, it’s perfectly fine and safe to pay more than what you owe.