Do Self Employers Have To Pay Quarterly Taxes?

Before one can truly answer the question about do you have to pay quarterly taxes as a small business you must understand what is identified as a self employer. According to the IRS the following things must apply to you:

  • You carry on a trade or business as a sole proprietor or an independent contractor.
  • You are a member of a partnership that carries on a trade or business.
  • You are otherwise in business for yourself (including a part-time business)

What Obligations Do Self Employers Have?

As someone who is self-employed it is often times required that you file an annual return and also pay a tax quarterly fee that is estimated.

Under federal law, the self employed must pay what is referred to as an SE tax in addition to income tax. SE tax is required because it is identified as the social security and medicare tax for individuals who work for themselves. It is often compared to the taxes that are withheld from the pay of wage earners for social security and medicare.  In most cases when you hear someone refer to self employment tax they are primarily talking about social security and medicare taxes.

Before you can decide whether or not you must pay self employment tax and income tax it is important for you to identify your net profit and or net loss.  You can do this by subtracting your business expenses from your business income. If your expenses are less than your income, the difference is net profit and becomes part of your income. If your expenses are more than your income, the difference is a net loss. You usually can deduct your loss from gross income.

Once you are able to determine whether or not you are self employed and how much you must pay in quarterly taxes you are now ready to start marking quarterly payments but now you’re probably wondering how. If you head on over to the IRS website you will be able to identify a form that is called Form 1040-ES. It is used to help you figure out your quarterly taxes. It also contains a worksheet that you will fill out  that can help you estimate how much you should be paying in taxes.

After you determine your quarterly taxes it’s now time for you to start focusing on  how to file your annual return. In order to file your return you will need to use Schedule C.  Schedule C is used to report your income loss from a business you operated or a profession you once practiced. In most cases a Schedule C is used for employees and businesses who have expenses that are less than $5,000.  

Another popular question that is often asked is are you required to file an information return and the answer is yes. If you have made or received a payment as a small business or as a self employer you are required to file an information return which is defined as a mandatory tax document that businesses must use to notify the IRS about such transactions. (For example, IRS Forms 1097, 1098, 1099, 3921, 3922, 5498, and W-2 are all information returns.) Informing the agency about reported transactions is mandatory.

At the end of the day it is important that you know the law in your state. By understanding your tax law you will understand which tax forms you need to fill out, what taxes you’re required to pay and most importantly you will be able to identify how the IRS views your business.

About the author

Seattle CPA+John Huddleston has written extensively on tax related subjects of interest to small business owners. He is a graduate of Washington State University and the University of Washington School of Law.