Tax
Quarterly estimated tax
Tax paid in four instalments during the year by people whose income is not subject to withholding.
Also called Estimated payments, Form 1040-ES.
An employer withholds tax from every paycheck and sends it in as it goes. Nobody does that for a freelancer, so the same obligation arrives as four payments you make yourself. The deadlines are 15 April, 15 June, 15 September and 15 January of the following year.
They are not evenly spaced and the second "quarter" is two months long, which catches people out. Miss one and the penalty is computed as interest from that date, not as a flat fee, so a late payment costs less than a missed one but more than an on-time one.
What you owe each time is a quarter of the lesser of 90% of this year’s tax or the safe harbor based on last year’s. Withholding from a job counts toward it and is treated as paid evenly across the year whenever it was actually taken.
In Contha
Contha computes the four payments from the ledger as it fills, so the figure moves with the year rather than being estimated once in January.
Related
Terms that come up beside this one
Safe harbor
A payment level that protects you from an underpayment penalty even if you end up owing more.
Self-employment tax
Social Security and Medicare tax paid by someone who works for themselves, covering both the employee and employer halves.
Tax reserve
Money set aside as it is earned to cover a tax bill that is not yet due.