Estimated Taxes for the Self-Employed: Who, When, and How Much

When you work as an employee, your employer withholds income tax and payroll tax from each paycheck and sends it to the IRS on your behalf. When you are self-employed—whether as a sole proprietor, an independent contractor, or a single-member LLC—the responsibility shifts to you. The IRS expects you to pay tax as you earn income, not just at the end of the year.

Quarterly estimated tax payments are due four times a year: mid-April, mid-June, mid-September, and mid-January of the following year. Each payment covers your combined income tax and self-employment tax (Social Security and Medicare) for that quarter.

To calculate how much to pay, start with your expected total income for the year, subtract your expected deductible business expenses, and apply the appropriate tax rates. A common shortcut is the safe-harbor rule: if you pay at least 100% of last year's total tax liability (or 110% if your adjusted gross income was above a certain threshold), you generally avoid underpayment penalties even if you end up owing more.

If your income fluctuates seasonally, you can use the annualized income method, which bases each payment on the income you actually earned up to that point rather than a flat quarterly estimate. This is more work but can smooth out cash flow for businesses with uneven revenue.

The most important habit is consistency. Set aside a percentage of every payment you receive—many self-employed people use 25% to 30% as a starting point—and make your quarterly payments on time. Waiting until January to deal with a full year of tax at once is the most common and most avoidable mistake.