Written by: Thomas Brooks
Published: February 18, 2025

Freelancers and Taxes: How to Avoid Falling Behind on Payments

Freelancers and self-employed individuals face unique challenges when it comes to taxes. Unlike traditional employees, freelancers are responsible for managing their own tax payments, which can often lead to confusion and missed deadlines. 

The importance of staying on top of these payments cannot be overstated, as failing to do so can result in penalties, interest, and unnecessary financial stress. 

Understanding Freelancers’ Tax Obligations

As a freelancer, you are considered self-employed, which means you are responsible for paying both the employer and employee portions of certain taxes. 

This includes self-employment taxes, which cover Social Security and Medicare, as well as federal and state income taxes. Unlike traditional employees who have taxes automatically withheld from their paychecks, freelancers must make estimated tax payments directly to the IRS.

It’s essential to understand that as a freelancer, you need to account for your tax obligations throughout the year, not just at the end of the tax season. This requires proper planning and awareness of your financial situation.

Why Freelancers Often Fall Behind on Taxes

There are several reasons why freelancers might fall behind on their taxes. One of the most common issues is irregular income. Since freelancers’ earnings fluctuate from project to project, it can be difficult to predict how much they’ll owe in taxes at any given time. Additionally, many freelancers do not fully understand their tax obligations, leading to missed payments or inaccurate filings.

Another key factor is poor financial planning. Without a steady paycheck or automatic deductions, freelancers may forget to set aside money for taxes, causing them to fall behind when it’s time to pay. The lack of consistent cash flow and deadlines can easily lead to procrastination, putting freelancers at risk of tax issues down the road.

How Do I Calculate Quarterly Estimated Taxes?

Freelancers are required to pay estimated quarterly taxes. These payments are made four times a year and are based on your projected income for the year. 

• Estimate Your Income: Look at your expected earnings for the year. Consider your hourly rates, project fees, and any recurring clients or contracts.
• Track Your Deductions: Identify business expenses that are deductible, such as home office costs, equipment, travel, and supplies. These will reduce your taxable income.
• Apply the IRS Tax Rate: Use the IRS tax tables to apply the appropriate tax rates to your income. For self-employment tax, the rate is 15.3% on net earnings.
• Use Online Calculators: The IRS provides resources and tools like the IRS Estimated Tax Worksheet to help you calculate your estimated taxes.

By staying on top of your quarterly estimated taxes, you can avoid a large, overwhelming tax bill come filing season.

Strategies to Stay Current on Tax Payments

To ensure you stay on track with your tax obligations, it’s important to keep accurate records of how much you’ve earned and identify potential deductions. These practices will give you a clearer picture of how much to save for taxes and help you avoid surprises when it’s time to pay.

• Budgeting for Taxes: Set aside a percentage of each payment you receive for taxes. A good rule of thumb is to save 25–30% of your income for taxes, but this may vary depending on your total income and deductible expenses.
• Estimated Quarterly Payments: Don’t wait until the end of the year to pay your taxes. Make your quarterly payments on time to avoid penalties and interest. Use IRS online tools to set reminders or make automatic payments.
• Using Tax Software or Tools: Tax software can help you track your income and expenses, calculate estimated taxes, and keep an eye on your deadlines. 
• Opening a Separate Tax Account: Consider opening a separate savings account dedicated to taxes. Transfer a percentage of each payment into this account so you always have the funds available when it’s time to pay your estimated taxes.

What to Do If You Can’t Pay Your Taxes on Time

If you find yourself in a situation where you cannot pay your taxes on time, it’s important to communicate with the IRS immediately. Ignoring your tax obligation will only lead to increased penalties and interest. The IRS offers options for individuals who are unable to pay, such as:

• Payment Plans: If you can’t pay your taxes upfront, consider setting up a payment plan with the IRS. The IRS offers short-term and long-term payment plans to help you pay off your tax debt in installments.
• Filing for an Extension: While this does not delay your payment deadline, you can file for an extension to delay your filing date. However, interest and penalties will still accrue on any unpaid taxes.
• Currently Not Collectible (CNC) Status: If your financial situation is dire, you may be eligible for CNC status, where the IRS temporarily suspends collection efforts.

Can I Avoid Penalties for Late Payments?

The IRS does have penalty abatement programs, including the First-Time Penalty Abatement. If it’s your first time missing a payment or filing late, you may be able to avoid penalties by requesting this abatement.

To avoid penalties in the future, consider setting up automatic payments, using tax reminders, and creating a dedicated tax savings fund. Paying your estimated taxes on time is the best way to avoid unnecessary penalties and interest.

What are some tax deductions for freelancers?

Freelancers can reduce their taxable income by claiming various deductions. Some of the most common tax deductions available for freelancers include:

• Home Office Deduction: If you use a portion of your home regularly and exclusively for business, you can claim a home office deduction.
• Business Expenses: Deduct costs related to the operation of your freelance business, such as software, office supplies, equipment, and advertising.
• Travel and Meals: If you travel for business, you can deduct expenses related to transportation, lodging, and meals.
• Professional Development: Courses, books, and conferences that enhance your skills may also be deductible.

Be sure to track all your expenses and keep detailed records to maximize your deductions.

What to Do If You’ve Fallen Behind on Payments

If you are falling behind on your tax payments, here’s what you can do:

• Contact the IRS: Reach out to the IRS as soon as possible. They may be able to offer a solution, such as setting up a payment plan or applying for penalty abatement.
• Offer in Compromise: If you owe a significant amount of tax debt that you can’t pay, you may be eligible for an Offer in Compromise (OIC), which allows you to settle your debt for less than what you owe.
• Seek Professional Help: If you’re overwhelmed, consider working with a tax advisor or enrolled agent to help you navigate the process and find the best solution.

Tips for Long-Term Tax Planning 

Freelancers should incorporate tax planning into their long-term financial strategy. Consider the following:

• Record-Keeping: Keep detailed records of all income and expenses throughout the year to make tax filing easier and ensure you don’t miss any deductions.
• Consult a Tax Professional: Work with a CPA or tax professional who can help you develop a tax strategy tailored to your business needs.
• Automate Tax Reminders: Use tax software or apps to set reminders for quarterly payments and deadlines.

Consequences of Falling Behind on Taxes

The consequences of not staying current on your tax payments can be severe. The IRS can impose penalties, charge interest, and even file tax liens or levies against your property. 

Falling behind on taxes can also impact your credit score and ability to secure loans. The longer you wait to address the issue, the worse the consequences will be.

Conclusion

Freelancers need to be proactive when it comes to taxes. By understanding your tax obligations, calculating your estimated taxes, and utilizing strategies like budgeting and tax software, you can stay on top of your payments and avoid financial stress.