How much should I pay in quarterly estimated taxes for Federal?

[Joestl]

I am an independent contractor getting paid on a 1099-NEC.  20% of my yearly income? What about the deductions I can claim like my car and other misc expenses I have?  Does anything change if I file jointly with my wife and she gets paid by W2?  I did not pay any quarterly estimated taxes in 2020 and it seems that we owe a lot more this year.  Any suggestions as to what I can do when paying taxes next year so we won't get hit by a bigger tax bill?

[Carl]

What I do is send the IRS 20% of my *gross* business income each quarter. Then at tax filing time it is rare (extremely rare) for me to owe any more tax on my business income. It's more common for be to get some of that refunded back to me.

I don't waste my time with the worksheets and all that crap.

Overall, on just the business income alone, you're going to pay "regular" taxes where the tax rate is determined by your overall total AGI. You're also going to pay an additional 15.3% Self-Employment tax on the business income only. That SE tax is basically the employer side of your Medicare and Social Security. Now you may be thinking the total tax paid would be more than 20%. It will. But at tax time when you figure in all your deductible business expenses, it will come out to "about" 20% of your *gross* business income; give or take a few percentage points.

It the two tax years I actually owed the IRS more, it was less than $500. That's nothing. I just wrote the check and was done with it.

[KathrynG3]

1. Yes, @Carl is correct that you could pay in a rough estimate by using gross income. The estimates are paid at 4/15, 6/15, 9/15, and 1/15. Otherwise, yes, you would use your profit and loss year-to-date to calculate the net income. This would capture the income and deductions and be closer to the actual self-employment tax.

Another way to know the amount of estimated payments to make would be to use QuickBooks Self-Employed, which calculates these amounts for you. This article explains where to go to login and what to do. How do I access QuickBooks Self-Employed?

2. Since your wife is getting paid by a W-2, it could affect what tax bracket you have for the income tax portion of your income.

3. Yes, by paying estimates in quarterly, there will not be as large of a tax balance due at year end. These can be paid by one of the following methods: 

• mailing in a payment-address following the TurboTax instructions, or
• by using either Direct Pay or
• by using the Electronic Federal Tax Payment System (EFTPS).

[Joestl]

So do I need to send the 20% to Federal or State or both?

[Joestl]

@KathrynG3Do I pay this estimated tax payments to Fed or State or both?

[SamS1]

Pay the 20% to Fed and generally 5% to state.  The 20% to Fed is to cover both your income tax and self-employment tax.  Self-employment tax is 15.3% of your net income and is for Social Security and Medicare taxes.  The 5% to state is really dependent on your state income tax rates.  This is a ballpark estimate that you can changed depending your state of residence.  Another option is to have your wife withhold more tax from her pay to cover the amount of additional tax on you self employment income.  Then you would not need to pay estimates, if you file a joint return.

[Carl]

I say 20% to the IRS will cover you fine. But the highest tax rate by a state that I'm currently aware of, is something like 8.5%. So find out what your state's highest tax rate is. Then if you send the state that percentage of your gross business income each quarter, you "know" you're covered for the state taxes.