Self employed

Hi jenny217,

The general rule is that you must pay as you go. Meaning that when you file your tax return, if you haven't paid enough taxes through withholdings or estimated tax payments then you might owe an underpayment penalty. 

To determine whether you need to make quarterly estimates, answer these questions:

• Do you expect to owe less than $1,000 in taxes for the tax year after subtracting your federal income tax withholding from the total amount of tax you expect to owe this year? If so, you're safe—you don't need to make estimated tax payments.

• Do you expect your federal income tax withholding (plus any estimated taxes paid on time) to amount to at least 90 percent of the total tax that you will owe for this tax year? If so, then you're in the clear, and you don't need to make estimated tax payments.

• Do you expect that your income tax withholding will be at least 100 percent of the total tax on your previous year's return? Or, if your adjusted gross income (Form 1040, line 8b) on your tax return was over $150,000 ($75,000 if you're married and file separately), do you expect that your income tax withholding will be at least 110 percent of the total tax you owed for the previous year? If so, then you're not required to make estimated tax payments.

If you answered "no" to all of these questions, you must make estimated tax payments using Form 1040-ES. To avoid a penalty, your total tax payments (estimated taxes plus withholding) during the year must satisfy one of the requirements above.

Please remember that when you are preparing your 2021 tax return, should the software calculate an underpayment penalty, follow the prompts and review the underpayment penalty section.  You will have an option to choose the annualized income method.  By using this method, you will report uneven income earned during the year and potentially reduce or eliminate your underpayment penalty, especially if your income is earned in quarter 4. The fourth quarter estimated tax payment is due January 18, 2022. (normally it’s on January 15^th but is later this year due to the weekend)