Paying self-employment taxes doesn’t need to be a frustrating and nerve-wracking experience. Staying organized and disciplined can ease the pain come tax time and help avoid any unwanted surprises.
So you’ve started your own virtual assistant business, secured some clients, and the money has finally started to flow in. That’s a beautiful thing, but before you throw all of that fresh income at a lavish party to celebrate your new-found success, bear in mind that the government is going to demand its cut, and your failure to provide self-employment taxes (and to provide them on time) could result in fees and penalties and all sorts of unnecessary headaches, all of which is easily avoidable with some knowledge and organization.
This article is not meant as an in-depth, CPA-level accounting advice piece. On the contrary— this is a basic tutorial on how and when to pay your taxes as a small business, and how to roughly anticipate your tax burden. We want to help you set some basic expectations of yourself and give you the tools to drive away the darkness of confusion and replace it with the light of knowledge.
Quarterly tax simplified
In the US, self-employment taxes (also known as estimated quarterly income taxes) need to be paid quarterly, as in four times a year. The due dates for each quarter are as follows:
- Quarter one (Q1) = April 15
- Q2 = June 15
- Q3 = September 15
- Q4 = January 15
If one of these dates happens to fall on a weekend or holiday the due date is the next business day.
Self-employment tax is typically around 30% of your profit. The profit is what you have left AFTER business expenses. As a super-simplified example:
Let’s say in Q1 you took in $10,000 in client payments, but you spent $2,000 on your business in the form of rent and supplies. In this scenario, your profit for that quarter is $8,000. This will also be the figure that the government will look at to calculate your tax burden, which is going to be around 30% of that $8,000. 30% of $8,000 ends up being $2,400, and that is your Q1 estimated tax burden.
How to pay
Once you’ve gotten all of your info together, crunched the numbers and have a final figure, then what? How do you pay your quarterly self employment taxes? Conveniently for you (and the IRS), there are several ways you can pay that money in:
Debit or Credit Card
Easy, but there are fees. You must go through an IRS approved processor, and each one charges a slightly different amount.
Digital wallet, such as PayPal or Click to Pay
Similarly, there will likely be fees involved.
This is a free system offered by the U.S. Treasury. It allows you to not only pay, but also to schedule payments up to one year out, track payments, and even receive help with payments or questions from an IRS Customer Service Agent. You can enroll online for the EFTPS.
Your ability to use this method will depend on your bank, and has some of the highest fees attached, so we don’t recommend it, though it is technically an option.
Check or money order
The only fees here are the cost of the check or money order itself. These must be mailed and postmarked by the due date to avoid late fees or penalties.
Yes, cash is still an accepted form of payment for self-employment taxes. DO NOT MAIL CASH TO THE IRS. There is a list of retail affiliates that work with the IRS and will accept cash payments. There are some caveats, such as a maximum of $500 per payment, $1000 per day total limit, and a $1.50 fee per payment. It is absolutely not an ideal way to pay your taxes, but it is still a viable method. The following is a list of participating retailers:
- Dollar General
- Family Dollar
- CVS Pharmacy
- Pilot Travel Centers
- Kum & Go
- Royal Farms
- Go Mart
- Kwik Trip
Keep in mind
These quarterly self-employment tax payments are estimates, to the best of your ability. While they don’t need to be spot on, your end of year taxes do. Quarterly payments are essentially a good faith agreement between your business and the government and a way to avoid a gigantic sum at the end of the year, which if you haven’t prepared and saved for, can be overwhelming.
Um… what day is it again?
Not everyone is great at remembering important dates. Personally, if it’s not written down somewhere, it doesn’t exist in my brain. Here at Virtualcopia, we have quarterly reminders that we send out so you’ll never have to miss a self-employment tax date or incur unnecessary fees or penalties. Even if you’re not yet a Virtualcopia member you can still sign up for free quarterly self-employment tax email reminders.
Virtualcopia membership also grants you access to our Virtualbooks, which helps keep all of your income and expenses organized and up to date with a real-time estimated tax calculator built right in.
Freshbooks and Quickbooks are all extensive accounting programs that do a good job of keeping your business finances in order, though they all are paid platforms. Read more about our comparison of business accounting tools.
Self-employment taxes are an uncomfortable but necessary facet of living in a communal society. Hopefully this article takes some of the anxiety out of the process and gives you the power and knowledge to carry out your civic duty with confidence, if not without a little old-fashioned grumbling. After all, that is your right as an American citizen.
Matthew Ogden is a Minneapolis-based copywriter and content writer and editor. He’s written for national retailers and lobster roll companies alike. When not writing he can be found nose deep in a book, writing and performing music, or nerding out about guitar tone.