Self-employed individuals, independent contractors, and some business owners may need to make estimated tax payments throughout the year rather than waiting until an annual tax return is filed.
Because taxes are not always withheld automatically from self-employment or business income, quarterly payments can help spread tax obligations across the year and reduce the chance of facing a large unexpected balance at filing time.
Who May Need Estimated Payments?
Estimated payments may apply to people who receive income that does not have enough tax withheld, including self-employment income, freelance income, investment income, and certain business earnings.
Why Quarterly Planning Helps
Making estimated payments during the year can help:
- Spread tax obligations across several payments
- Reduce the chance of a large balance due
- Avoid possible underpayment penalties
- Make year-end planning easier
Review Your Situation During the Year
Income and expenses can change, so estimated tax needs may also change. Reviewing your tax position during the year can help make sure payments remain appropriate rather than relying on one calculation for the entire year.