An Introduction to Tax Withholding for the Self-Employed

If you are self-employed, you need to consider tax withholding. Working as a self-employed individual means you must be both an employer and an employee. Generally, upon hiring you, an employer will ask you to fill out a W-4 Form. A W-4 Form tells your employer how much of your federal and state taxes you would like to have withheld from your paycheck. However, if you are self-employed, instead of having taxes withheld from your paycheck each month, you must anticipate what you will earn for the year and pay your anticipated taxes quarterly.  

How To Estimate Your Tax Withholding

Before you know how much in taxes to withhold, you first must determine how much income you anticipate making for the year. If this is your first year working for yourself and your business is just getting started, it may be difficult to estimate how much you will earn. If it is your first year, you can contact the IRS and they may be able to help you estimate what you will earn based upon what other self-employed individuals in your profession, in your state earn.  To determine your estimated tax, you must determine your expected income including deductions and credits for the year. If this is not your first year as a self-employed individual, it may be beneficial to use your income, deductions, and credits from the previous year as a starting point. Then, use the Internal Revenue Service, or IRS, tables to estimate what you will pay in taxes based upon your income.

Paying Your Estimated Tax

If you expect to owe at least $1,000 in tax for the year, you must pay estimated taxes. Estimated tax is used to pay income tax and self-employment tax, as well as other taxes and amounts reported on your tax return. Estimated tax payments are paid in four periodic payments, or quarterly. For example, any income you earn between January and the end of March must be paid by April 15. You can pay your estimated tax on-line or through the mail. However, the IRS must receive your quarterly payment by the due date, or you will be subject to penalties.


If you are late paying your quarterly payments of if you did not pay enough tax during the year, you can be assessed a penalty even if you expect a tax refund at the end of the year. In addition, if you live in a state that taxes a percentage of your income, otherwise known as an income tax, you must withhold taxes and pay your estimated tax to your state as well as the federal government. Contact your state's tax department to determine how they address self-employment taxes.

Contact a Tax Professional

Tax withholding and anticipating your estimated tax as a self-employed individual can be confusing. If you have questions about how to pay your taxes, contact a tax professional in your state as soon as possible.

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