This is a question often asked by people starting to make money from independent contracting. To put it simply, when making money independent as a contractor, taxes are not paid by the employer and they must be paid by you, the contractor.
A general rule is that if you will owe more than $1000 in taxes from contracting income for the year, then you need to make quarterly estimated tax payments.
This means that while you still need to file a tax return in April every year, you also need to pay your estimated taxes for 1099 income belonging to 4 tax quarters in the year. If you forget or choose not to pay these estimated taxes, you could be subject to penalties and interest that will need to be paid for in April.
Quarterly Tax Due Dates
So, if you need to pay estimated taxes, what are the 4 quarters in the year and the due dates for each estimated tax payment?
Quarter 1 - due April 15
1099 income from January 1 to March 31
Quarter 2 - due June 15
1099 income from April 1 to May 31
Quarter 3 - due September 15
1099 income from June 1 to August 31
Quarter 4 - due January 15 the following year
1099 income from September 1 to December 31
Note: If the due date for making an estimated tax payment falls on a Saturday, Sunday, or legal holiday, the payment will be on time if you make it on the next day that's not a Saturday, Sunday, or legal holiday.
This seems complicated...
It is a bit difficult to manage, which is why some freelancer opt to simply pay all their taxes on April 15 with their tax return along with any penalties they've incurred. We definitely don't recommend this, as it means you're paying extra, unnecessary fines and you have to set aside a much larger sum for tax day.
Because it can be difficult to stay on top of quarterly estimated tax payments, we created the Bonsai Tax add-on that automates much of the process for freelancers.
While you will still need to make the set aside enough for tax payments, Bonsai sends reminders for any upcoming tax payments and shows how much you should have saved on an ongoing basis.
To learn more about Estimated Taxes, who they apply to and when they are due, you can always refer to the IRS website. There are helpful guides and forms that should be referenced by contractors to ensure compliance.