Tax Filing for Self Employed: Requirements, Deadline and Late Penalty

Do you own and run a business as its sole proprietor or work as an independent contractor? Are you a member of any partnership that runs a trade or business? Are you otherwise in business for yourself (including a part-time business, freelance or gig work)? If your answer to any of the above is yes, then you are a self employed individual, according to the IRS. As a self employed individual, you have certain tax obligations to the US tax collection agency. Read on for details on tax filing for self employed individuals.

What Are The Tax Filing Obligations For A Self Employed Person?

Self employed individuals have to pay self employment (SE) tax as well as income tax within the tax filing deadline for self employed. The SE tax is essentially a Social Security and Medicare tax primarily for individuals who work for themselves. It is similar to the Social Security and Medicare taxes withheld from the paycheck of employees who work full-time for a company and are on their payroll.

Before you can determine if you are subject to self employment tax and income tax, you need to  calculate your net profit or net loss from your business. It is calculated by subtracting total business expenses from total business income. If your expenses are less than your income, that means you earned a profit. This net profit becomes part of your income on page 1 of Form 1040 or 1040-SR. 

If your net profit income from self employment was $400 or more, you have to file an income tax return with the requisite income tax within the tax filing deadline for self employed. If your net income was less than $400, you still have to file an income tax return but you may be exempt from paying the tax. 

As per the tax filing requirements for self employed individuals, the SE tax is paid annually, but the income tax is to be paid quarterly on the basis of estimated income in the forthcoming quarter. The last date is April 18, 2023, for self-employed people to file their income tax returns for the fourth quarter. The IRS can send penalties if you do not file your quarterly self-employment taxes on time. April 18, 2023, is also the annual deadline for filing taxes for self-employed people.

How Do I Make My Quarterly Payments?

Self employed individuals make quarterly payments at the beginning of each quarter in a financial year on the basis of their estimated income in the coming quarter. You can use Form 1040-ES to figure out these tax amounts. Similar to Form 1040 or 1040-SR, Form 1040-ES contains a worksheet to help you calculate your quarterly estimated tax, and other tax liabilities you’ll have for the year, if any. 

The IRS Publication 505 contains all the rules and details you might need to know about how to calculate this amount. If you overestimated how much tax liability you’d owe for a year and are due a refund, simply complete another Form 1040-ES worksheet to refigure your estimated tax for the next quarter. In the same way, if you estimated your earnings too low, complete another Form 1040-ES worksheet to recalculate your estimated taxes for the next quarter.

Who is Subject to Estimated Taxes?

Full-time employees working for a company have a certain amount of taxes automatically withheld from their paychecks. As a self employed person, you most likely don’t have taxes withheld from your pay throughout the year. That makes you subject to quarterly estimated taxes that are to be paid within the tax return filing deadline for self employed persons. In general, you must pay the quarterly estimated taxes if you expect to owe $1,000 or more annually for your taxes.

How to Pay My Estimated Taxes?

Once you figure out your estimated taxes (you can choose from a free software or online service to help you with the same), it’s time to get your payment in. For this, you can use the Electronic Federal Tax Payment System (EFTPS) to pay your estimated taxes. It helps simplify payments, making them instant, without any fee! Alternatively, you can mail in your payment. The IRS provides state-wise mailing addresses based on where you live. Please be aware that your payments should be postmarked by the due date to avoid the penalties for not filing quarterly self employment taxes on time.

Quarterly Estimated Tax Deadlines for FY 2022-23

The 2023 deadlines for quarterly estimated tax payments are as follows:

• 1st Quarter (January 1 – Mar 31, 2023): April 18, 2023
• 2nd Quarter (April 1 – May 31): June 15, 2023
• 3rd Quarter (June 1 – August 31): September 15, 2023
• 4th Quarter (September 1 – December 31): January 16, 2024

If the 15th falls on a Saturday, Sunday or national holiday, then the due date is the following business day.

You can get IRS tax filing and payment deadline extensions if you are a victim of a recent federally declared disaster. You can check the IRS disaster relief page for additional relief information. However, if you skip making a quarterly payment or pay late, you may be subject to penalties for not filing quarterly self employment taxes. 

The penalties for late filing can be 5% of the amount of tax due for each month that you’re late. If you’re more than 60 days late, then the penalties get even higher.

However, for those self employed individuals whose earning has been uneven during the year, there is the option to use the annualized installment payment method at tax time. With this, they can avoid the tax penalty for not paying estimated taxes every quarter, because of fluctuating income.

How Do I File My Annual Return?

To file your annual return, you will need to fill out Form 1040. The information provided in  Schedule C of Form 1040 will guide you in filling out this form. Follow its instructions to report your income or loss if you work in your business or profession as its sole proprietor.

In order to report your Social Security and Medicare taxes, you must file Schedule SE (of Form 1040 or 1040-SR). Use the income or loss calculated in Schedule C to calculate the amount of Social Security and Medicare taxes you have owed during the year. The Instructions for Schedule SE may be helpful in filing the form.

Tax Filing Deadlines for the Self Employed 

If you’ve taken the plunge into self employment, that is great. But don’t miss your important tax dates and deadlines. Below is the list of important tax dates and deadlines for self employed individuals:

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