Making quarterly tax payments to the IRS is another essential aspect of owning your own practice. You'll need to make these payments if you know you'll owe the IRS more than $1,000 in taxes each year. You'll estimate, file, and submit these payments with Form 1040-ES.
If you live in a state with income taxes, you might need to pay quarterly taxes to your state's Department of Revenue as well.
The IRS uses a pay-as-you-go income tax system, meaning you must pay your taxes as you earn income. It enforces this by charging penalties for underpayment if you haven't paid enough income taxes through withholding or making quarterly estimated payments. It also charges penalties for late payments, even if you ultimately receive a refund.
As a self-employed individual, you typically file an annual tax return but pay estimated taxes quarterly. Quarterly taxes generally include two categories:
- Self-employment tax (Social Security and Medicare)
- Income tax on the profits that your business made and any other income
For example, in the 2024 tax year:
- The self-employment tax rate on net income up to $160,200 is 15.3%. That breaks down to 12.4% Social Security tax and 2.9% Medicare tax. As your income increases past this amount, the 2.9% Medicare tax continues, but the Social Security portion stops.
- High earners — generally, individuals with earned income of $200,000 and above or married couples with incomes of $250,000 or more — are subject to an additional Medicare tax of 0.9%.