Here's What Happens When You Don't Make Estimated Tax Payments as a Freelancer

Freelance life has many perks, including the flexibility to create your schedule and the ability to focus on projects that interest you. But it's important to consider how your personal finances can change when you become a freelancer. Notably, you'll be responsible for submitting your own tax payments since you're a self-employed worker. The best way to pay your taxes without being charged extra fees is to make estimated tax payments throughout the year.

The government wants you to pay your taxes as you make money

According to the IRS, taxes must be paid as you earn or receive income during the year. You can satisfy these requirements by having taxes withheld from your paycheck if you're a W-2 employee or by making quarterly estimated tax payments if you're a freelancer.

Your taxes aren't withheld from your pay if you work as a freelancer, so you'll be responsible for making quarterly estimated tax payments throughout the year. You may be penalized if you skip or fall behind on your estimated tax payments or underpay because you didn't send enough money to meet your tax obligations. The IRS also charges interest on penalties, so these extra fees can add up and impact your checking account balance.

If you want to avoid owing the IRS more money due to penalties, you should make estimated tax payments every quarter. Most taxpayers can avoid a penalty if they owe less than $1,000 in taxes after subtracting their withholdings and credits.

Another way to avoid penalty charges is to pay at least 90% of the tax for the current year or 100% of the tax shown on the return for the priority year, whichever is smaller.

Do this to stay on top of your tax payments

When you're a freelance worker, life can get busy. It can be easy to forget to make your quarterly estimated tax payments if you have a lot of projects that are taking up much of your time. But by planning accordingly, you can stay on top of your estimated tax payments.

The first suggestion is to set money aside regularly throughout the year to cover your tax liability. You can set up automatic savings transfers through your bank to save the money automatically. You can save time by doing this, and it will help to ensure you have enough money in your savings account when the time comes to make your next tax payment.

Next, you'll want to review the quarterly tax payment due dates and mark them somewhere so you don't forget. One option is to make a note of them on your calendar. If you need extra help remembering, you may want to set up reminder alerts on your phone.

For the year 2023, estimated taxes should be paid by the following dates:

• Q1: April 18, 2023
• Q2: June 15, 2023
• Q3: Sept. 15, 2023
• Q4: Jan. 16, 2024

This strategy works well for me and has helped to eliminate stress when my work life gets extra busy. Taxes look different for freelancers, so it's essential to understand your tax obligations, and you might even want to work with an accountant or other tax professional. Check out our free tax resources to improve your knowledge about other important tax topics.