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Level 3

First estimated tax payment - self-employed

Hello,

 

I just started my first foray into the world of self-employment after moving overseas for my husband's military orders. I was employed W2 by the company I work for until the end of April; now I'm a 1099 independent contractor for the same company. I started work as an IC on May 1st and will be sending my first invoice on June 1st, so I won't be getting paid until June.

 

Am I required to make an estimated tax payment on June 15 for the work performed in May, even if I don't get paid until June?

 

Thanks for your help!

 

JJ

2 Replies
Level 11

First estimated tax payment - self-employed

When you receive your first payment is not really factor.

What you need to consider is what your total taxes will be for 2019.  This will include income tax AND self-employment tax.  The SE tax is something you haven't had to deal with before.  It is roughly just under 15% of your net income from self-employment.

 

You need to estimate your total income tax plus SE tax.  From that, you would subtract any withholding (yours and your husbands), less any credits, pre-payment credits, etc.  Then you would spread out the remaining tax over the estimated payments.  It might be easier to include some payment in the June filing, that way the remainder of the payments won't have to be as large.  2019 won't be as large as what probably 2020 will be.  You have your W2 withholding of Jan - April to help pay the taxes...but, the SE tax will greatly increase your tax bill.

 

See the following link for some more information.  The link also has sub-links for forms and further information

 

https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes

 

 

Level 20

First estimated tax payment - self-employed

Actually, you're not "required" to make any quarterly tax payment. But not doing so will at best, create additional (and avoidable) paperwork for you at tax filing time. At worst, you will be assessed underpayment penalties for not having paid quarterly taxes. Now I've been self-employed for just over 15 years now. Here's how I deal with it, and it's never done me wrong.

Overall, if at tax filing time if what you owe the IRS is more than $1000 or more than 10% of your total tax liability, (whichever is *higher*) then you will be assessed an underpayment or under withholding penalty.  Now the IRS provides forms for you to "figure" your quarterly tax payment each quarter. But I don't use them because I find it to be an absolute and total waste of my time.

Therefore I send the IRS a minimum of 20% of my *gross* earnings each quarter. If your total household income is expected to exceed $82K if filing single or $165K if filing joint, then make it 25% each quarter. 

Then at tax filing time I have always been well within $1000 of my tax liability. Sometimes I owe the IRS and it has "always" been less than $1000. The most I've ever paid in the year at tax filing time was $472. In the years I get a refund it's "always" less than $1000, meaning that I'm doing pretty good with my 20% method.

Now on the IRS worksheets, if I use the worksheets (which is a waste of time) I find that the bottom line payment on the worksheet will always be between 18% and 22% of my gross earnings that quarter. Therefore I quit using the worksheets and just send the IRS a flat rate 20% of my earnings each quarter. It's never done me wrong yet.

"Am I required to make an estimated tax payment on June 15 for the work performed in May, even if I don't get paid until June?"

No. Not really. You're not "required" to make any quarterly payment, as stated above. However, I would suggest you do make a payment anyway, even if you have a quarter where you have no income. It just makes "YOUR" life easier at tax preparation and filing time. For me, if I have a quarter with no income, then I will at a minimum make a $1 quarterly tax payment so as to show that I did "in fact" make such a payment. 

Now, if your SLR also taxes personal income, you'll need to research that to see if your state requires quarterly tax payments on a business you own as a resident of that state, even though the business is not physically in that state.  Base legal may be able to better assist you with that one.