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On January 1st, 2013, I started tracking expenses and income for my freelance business. I made estimated tax quarterly payments of $1,000 each on April 15 and June 17 based on my estimated 2013 income of $20,000. Please note that 80% of my income comes from one client. This week, my client offered to hire me as a full-time employee and will begin withholding taxes. Now my self-employment income will be $4,000 for the year instead of $20,000. What do I do for my September quarterly tax payment?


ANSWER


The BIDaWIZ Team's Answer:

The IRS views quarterly estimated tax payment requirements in accordance with your annual income for the year. Thus, if your projected self-employment income changes from $20,000 to $4,000 and you've already made two payments of $2,000 in total, you've already paid 50% in taxes on your self employment income for the year. The changes in your clients makes no difference, it's really the dollar amount that matters. Thus, you should not continue to make estimated tax payments in the third and fourth quarters of the year. It's also likely you'll be receiving a refund for the year since you've already overpaid in part some of your self employment taxes. The most important factor to consider here is whether or not you've paid enough in taxes for your self employment income for the year, which appears to be the case given the facts and circumstances that you've provided.

The BIDaWIZ Team

 

 

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