The estimated tax for the second quarter of 2018 is due today, June 15.
Why do the self-employed have to pay four times per year? Essentially, the United States tax system is a pay as you go system. Employers generally remove taxes for workers every paycheck.
The self-employed do not operate the same. Instead, the Internal Revenue Service (IRS) expects the self-employed to make payments on a quarterly basis.
Who must pay this tax? The Internal Revenue Service (IRS) expects payment from sole proprietors, single limited liability company (LLC) members, independent contractors, partners in a partnership or those who are “otherwise in business for yourself.”
How much does the IRS require? The IRS expects a percentage of the self-employed worker’s net earnings. The expected payment is currently set at 12.4 percent for social security and an additional 2.9 percent for Medicare.
What happens if you do not pay? Self-employed workers that do not make quarterly payments can face serious financial penalties. These generally apply if you end up owing more than $1,000 at the end of the year.
In some cases, an exception applies.
It is also important to note that, in addition to federal tax obligations, state tax obligations likely apply as well. A failure to meet your tax obligations can lead to a notice from the IRS. This notice can result in the financial penalty noted above as well as a more thorough review of your tax filings, also known as an audit. As such, it is wise to contact an attorney experienced in these matters.
