Being self-employed can mean more personal freedom and keeping more of the money that you generate through your knowledge, skills or hard work. However, self-employment or independent contractor status also comes with additional costs.
Increased tax obligations are one of the biggest changes people don’t prepare for when shifting from a career as an employee to a career as an independent contractor or self-employed professional. Understanding when an independent contractor has to make estimated tax payments can help you fulfill your tax obligations and avoid the consequences that could come from non-payment.
After the first year working as an independent contractor
Not everyone trying to go into business for themselves or work as an independent contractor will successfully pursue that career change. Some people will struggle with managing their own time or finding work, forcing them to go back to standard employment.
The Internal Revenue Service (IRS) recognizes that self-employment is often a temporary situation and does not work well for everyone. They typically only require that independent contractors start filing quarterly estimated tax payments after the first year when they file a return as an independent contractor using a 1099, unless that person had a tax liability (taxes owed) when they filed their income taxes the year before they became a contractor.
When they will owe more than $1,000 of taxes
Some people who are self-employed don’t earn much. They may just have a small side gig that lets them supplement their monthly budget. If an independent contractor will not owe more than $1,000 when they file their taxes, they will not have to make estimated quarterly tax payments to the federal government.
When do you send payments into the IRS?
Quarterly tax payments due to the IRS occur every three months. April 15, June 15, September 15 and then January 15 of the following year are the traditional due dates for quarterly tax payments.
Independent contractors have the option of sending payment to the IRS physically or using digital payment options on their website. There are also estimated quarterly income taxes assessed by Georgia and quarterly payments. Failing to make quarterly estimated taxes could incur penalties, as could underpaying those estimated taxes.
Learning about your responsibilities as an independent contractor is as important as responding quickly when facing allegations of underpayment or other forms of tax controversy.