Quarterly self-employment taxes: How they work and how to calculate estimated payments

Self-employed workers in the United States are required to report their earned income to the IRS on a quarterly basis.

Who counts as a self-employed worker?

According to the IRS, there are three major categories self-employed workers fall into.

The first are those who are independent contractors or sole proprietors of a trade or business. Independent contractors can range from consultants to drivers for delivery apps.

The second are members of a partnership that collectively own a trade or business. For example, hair stylists who share a studio could be self-employed workers who form a business partnership where each “contributes money, property, labor or skill, and shares in the profits and losses of the business.”

The third are gig workers or those who run a business part-time, some of whom also may have salaried jobs with benefits provided by a formal employer. Workers who are employed through an application like Grubhub or Lyft or an online platform like Etsy or Poshmark will begin receiving a 1099 form each year that will need to be reported on one’s tax return if the income generated surpasses $600.

Read more from AS USA:

What taxes need to be paid to the IRS on a quarterly basis?

The IRS has stated that “self-employment tax” only refers to Social Security and Medicare taxes and not any other tax (like income tax).” Salaried employees pay 7.65 percent of their income in Social Security and Medicare taxes, and their employer contributes the same amount. The total paid in these taxes is 15.3 percent, and self-employed workers, who make over a certain amount, will be required to pay this total to the IRS.

Any other income tax the IRS charges will be paid annually like other employees who file a tax return.

How do I calculate the amount of self-employment tax I owe?

Self-employed workers will only be required to pay tax on the profit their business makes. This makes record keeping essential to avoiding fees and penalties because the IRS could audit you if they find irregularities.

The IRS instructs self-employed workers to subtract their expenses from the income generated by the business. In cases where your income is less than the business’ expenses, no taxes will need to be paid. Taxes will only need to be paid on income greater than $400 during the quarter. All of this information must be reported on page 1 of Form 1040 or 1040-SR.