One of the hardest things about becoming your own boss is that there is no one else with the responsibility to oversee your actions. You can’t depend on human resources or payroll advising you of any financial obligations you may have or withholding taxes from your paycheck.
All of that responsibility ultimately falls to you. As a small business owner or independent contractor who is self-employed, you will have to withhold money from your own earnings to pay taxes. Not only will you need to file a tax return every year, but you will also need to make estimated quarterly tax payments to the federal government and the state.
What happens if you fail to file your quarterly taxes?
The IRS will assess penalties for unpaid or underpaid estimated taxes
Using either worksheets and your current income information or your last year’s tax return, you can estimate what your tax obligation will be for the current year. You will have to send estimated income tax payments to both the Internal Revenue Service (IRS) and the Georgia Department of Revenue.
The first estimated quarterly tax payment every year aligns with the income tax return deadline of April 15. You will then need to make a second payment by June 15 and the third by September 15. The fourth estimated tax payment is due by January 15, with the cycle starting over again once you file your annual return and pay any balance left after applying your quarterly tax payments.
If you did not pay at least the amount of tax responsibilities you had the prior year or 90% of the current year’s tax obligations, you will be subject to a penalty. For those who make more than $150,000, paying 110% of the previous year’s tax liability is the rule instead. Those who don’t make payments on time or who underpay their taxes will have a penalty. The IRS will calculate the penalty based on the amount of delay in payment or the difference between what you paid and what you owed.
Understanding how the IRS might penalize you for making mistakes with your self-employment taxes will help you stay in compliance with the sometimes confusing tax obligations you have as a self-employed individual.