Quarterly Taxes & The Safe Harbor Rule
Unlike traditional employees, freelancers receive their full pay without any taxes withheld. This means the IRS expects you to send them payments four times a year. These are called "Quarterly Estimated Tax Payments."
If you wait until April 15th to pay everything, you will likely be hit with an "Underpayment Penalty."
Self-Employment Tax is Huge
Many new freelancers forget about the 15.3% Self-Employment Tax (which covers Social Security and Medicare). This is calculated on 92.35% of your net earnings and is in addition to your regular income tax.
The Safe Harbor Rule
To avoid penalties, you generally need to pay at least 90% of your tax liability for the current year, or 100% of your tax liability from the previous year (110% if your income is high).