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How QuickBooks Self-Employed tracks self-employment taxes

by Intuit Updated 3 weeks ago

Learn what federal self-employment taxes are and how QuickBooks Self-Employed estimates your federal quarterly tax payments.

If you're self-employed, you probably need to pay federal self-employment taxes. These payments cover your income, Social Security, and Medicare taxes for your self-employed work.

Since QuickBooks Self-Employed tracks your self-employed income and expenses, it calculates what you need to pay each quarter. Here's how QuickBooks calculates your federal estimated quarterly taxes, and what it doesn't keep track of.

Learn more about federal estimated quarterly taxes

Why do you need to pay these taxes?

If you work for someone as an employee, your employer takes taxes out of each paycheck. This is known as "withholding." It covers income, Social Security, and Medicare taxes.

If you're self-employed, you do your own withholding. That also means you need to send payments to the IRS each quarter.

Who needs to pay?

The rules are a bit complicated. Always refer to the IRS website for the most up-to-date info and specific requirements.

How often do you need to pay?

For W-2 employees, taxes are withheld from each paycheck. For self-employed individuals, you make estimated tax payments each quarter (or four times a year).

At the end of each quarter set by the IRS, you need to calculate your self-employed income and deductions. This gives you an estimated amount of taxes you need to pay to the IRS. At the end of the fiscal year when you know how much profit you actually made, you'll pay any remaining taxes or get money back for overpayments.

If you miss a payment, for whatever reason, there are penalties. Learn more about

failure to file penalties

. Or

use IRS Form 2210

to calculate any penalties or request a waiver.

If your estimated tax payment is $0, it means you didn't make a profit for that quarter. If you know you made money, make sure you entered and categorized all of your business transactions. When you file your taxes, you still need to report quarters when you didn't make a profit.

How QuickBooks Self-Employed calculates your self-employed taxes

It's important to add all of your business income and expenses and categorize them in QuickBooks. It constantly updates your estimates based on what you enter to give you accurate estimates.

QuickBooks Self-Employed estimates federal tax payments based on your self-employed income, deductions, predicted future income for the year, and tax profile.

  • QuickBooks adds up your self-employed income. Then it subtracts any expenses and deductions you can write off. This gives you your business's profit.
  • QuickBooks uses your current profits to estimate your income for the rest of the year.
  • QuickBooks asks about your tax situation when you first sign up. This creates your tax profile. We adjust for already taxed household income (for example, if you or your spouse is also a W-2 employee) and give you standard deductions.

Our goal is for you to owe no taxes for your self-employment work at the end of the year. If you pay the estimated amounts each quarter, you should owe little or nothing.

Your estimated tax payments may seem high for the first quarter. QuickBooks assumes your current profits will be similar for the next three quarters. These estimates get more accurate as you add more info.

You also have to cover all of your Social Security and Medicare taxes. In contrast, a W-2 employee usually pays one half and the employer pays the other.

What QuickBooks Self-Employed doesn't calculate

QuickBooks only calculates federal estimated quarterly taxes. It doesn't calculate other types of taxes, such as:

  • State income taxes (learn more about state self-employment taxes)
  • Sales tax (learn more about sales tax in QuickBooks Self-Employed)
  • AGI phase-outs and alternative minimum tax (AMT)
  • Children's interest
  • Medical expenses, stock payouts, and 401(K) draws
  • One-time lump-sum distributions
  • Special-cases standard deductions (if you're blind, over 65, etc.)
  • Tax credits
    If you need to calculate other types of taxes, don't worry. You can track your income in QuickBooks and calculate them yourself in TurboTax. If you have complicated taxes, we recommend working with an accountant.

If you need to calculate other types of taxes, don't worry. You can track your income in QuickBooks and calculate them yourself in TurboTax. If you have complicated taxes, we recommend working with an accountant.

Review and start a quarterly tax payment

To see how much you need to pay each quarter, here's how to get your tax info from QuickBooks Self-Employed. When you're ready, here's how to make estimated quarterly tax payments.

Review the IRS website for the most up-to-date quarter schedule and payment deadlines.

Note: Your state may also require estimated tax payments. QuickBooks Self-Employed is designed to work with your federal Schedule C. It doesn't calculate state estimated quarterly taxes. Learn more about state estimated quarterly tax payments.

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