John D. Teter Law Offices



1361 South Winchester Boulevard, Suite 113
San Jose, CA 95128

Independent Contractors and Estimated Taxes

 Posted on April 28, 2017 in Taxation Law

San Jose tax attorney, estimated taxesIf you are an independent contractor, you may be required to pay your taxes several times throughout the year. This is called an estimated tax.

This requirement comes as a surprise to many freelancers and contract employees. If not properly handled, it can create undue stress as well as expose the taxpayer to IRS penalties.

It is important to not get bogged down in the complexity of your tax situation as an independent contractor. Instead, you should reach out to a professional, such as a tax attorney, who can advise you on how you need to comply.

What Federal Taxes Must You Pay Quarterly?

When independent contractors are paid, certain taxes are not deducted from their paycheck. These taxes are called the self-employment tax, and include Social Security, Medicare, and similar state taxes.

Independent contractors must also pay federal and state income tax on the money earned. These two categories make up the amount an independent contractor will have to pay quarterly for federal taxes (generally three times per year for California state taxes in different weighted amounts).

Many people wonder why they cannot pay their tax debt in one lump sum when they file their taxes for the previous year. The IRS has set up this system to receive tax dollars sooner, mimicking how traditional employees pay these taxes through payroll deductions.

Who is Required to Pay Federal Quarterly Estimated Taxes?

Independent contractors will have to adhere to the federal quarterly system if they expect to owe at least $1,000 in federal taxes for the year.

There are some exceptions to this rule, namely if the taxpayer did not have to pay taxes last year because, for example, the business did not make a profit. In this case, the taxpayer would not have to pay the federal estimated tax, so long as other conditions were met.

Typically, the amount of a full year’s federal quarterly taxes are set by taking the lesser of 90 percent of your total tax obligation of the current year or 100 percent of the tax obligation from the previous year.

Federal Quarterly Tax Payment Schedule

Independent contractors must follow the following schedule:

  • For income received from January 1 to March 31, pay taxes on April 15;
  • For income received from April 1 to May 31, pay taxes on June 15;
  • For income received from June 1 to August 31, pay taxes on September 15; and
  • For income received from September 1 to December 31, pay taxes on January 15 of the following year.

State tax payment schedules vary a bit state to state.

It is important to note that you do not have to start making payments each year until you earn income that year. Additionally, all payments should be postmarked by the due date.

To pay your federal quarterly taxes, you must use IRS Form 1040-ES, which has payment vouchers that are to be submitted with payments.

Contact a Santa Clara County Tax Attorney

Running afoul of the estimated tax payment requirements for both the IRS and the state can result in penalties. A tax attorney can help you determine if you are required to pay these taxes and advise you on how much you should pay. Call the skilled San Jose tax attorney at John D. Teter Law Offices at 408-866-1810 today to discuss estimated tax requirements and payments to the IRS and the State of California.


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