Are Self-Employment Taxes And Quarterly Taxes the Same?

You are in charge of filing your taxes and making the necessary payments if you operate as a freelancer or are self-employed. As a result, you are subject to tax responsibilities that do not apply to regular workers. You could owe quarterly estimated taxes and SE taxes. But what precisely are these 1099 employee taxes, and how do they differ from one another?

What Exactly Are Self-Employment Taxes?

Self-employment taxes are the levies that independent contractors pay to support Social Security and Medicare. Basically, when you work for a company, they take out your Social Security and Medicare taxes from your compensation. Because you are both the employee and the employer when you work for yourself, you are liable for both parts of these taxes.

2.9% of the taxes is for Medicare and 12.4% for Social Security. However, in the year 2021, you only owed Social Security taxes on the initial $142,800 of your income. Following that, you are exempt from paying Social Security taxes, but you will continue to owe Medicare taxes on all of your income.

What Exactly Are Quarterly Estimated Taxes?

Self-employed people pay quarterly estimated taxes throughout the year to fulfill their tax obligations. You are not an employee, thus taxes are not deducted from your paychecks like they would be if you were. You still owe tax on what you earn, though. Four times a year—on April 15th, June 15th, September 15th, and January 15th—estimated quarterly taxes are payable.

Based on your anticipated income and deductions, you'll calculate your annual tax obligation at the time you make these payments. You'll then send an amount to the IRS to satisfy your anticipated tax bill for that quarter. If you don't make these payments, you can owe fines and interest when you file your tax return.

Are Quarterly Estimated Taxes And Taxes for Self-Employment the Same?

No, self-employment taxes and quarterly estimated taxes are not the same. You pay your projected yearly tax burden in quarterly installments. You pay self-employment taxes on your net earnings to support Social Security and Medicare.

Although the two forms of taxes are distinct, they are connected. You prepay a portion of your self-employment tax obligation when you make quarterly anticipated tax payments. This might help you avoid underpayment fines as well as a hefty tax bill at the end of the year.

How Can Freelancers Save the Most in Taxes?

Saving on taxes is one of the toughest tasks for independent contractors. Freelancers aren’t provided with retirement plans from their employers and health insurance, in contrast to typical workers.

Here are a few strategies to help you save on taxes as a freelancer:

1. Take advantage of tax deductions - The IRS permits self-employed people to deduct some business expenditures from their income, such as home office expenses, travel expenses, and equipment charges. You may reduce your taxable income and reduce your tax liability by utilizing these deductions.
2. Contribute to a retirement account - While regular workers can make contributions to employer-sponsored retirement plans, freelancers can still make contributions to their own IRA or solo 401(k) plan. Tax-deductible contributions to these accounts can lessen how much of your income is taxed and may end in a tax refund.
3. Maintain correct records - As a freelancer, you must maintain complete records of your earnings and outgoings for the whole year. You can maximize your deductions and stay out of trouble with the IRS by doing this.
4. Consult a tax expert - Freelancer taxes may be confusing, so it's a good idea to consult a tax expert who can guide you through the procedure and point out any potential tax-saving options.

To Sum Up

You need to make quarterly estimated tax payments as well as SE taxes if you are a business owner or independent contractor. While these taxes are distinct, they are connected and can contribute significantly to your entire tax liability. You may lower your tax burden and keep more of your hard-earned money if you comprehend these taxes and take full use of your tax-saving alternatives.