Staying on Track: A Brief Tax Guide on Estimated Tax Payments for Self-Employed Individuals in Guam, CNMI

by Tina Azarvand, Esq., LL.M. | Columnist 

Being self-employed in Guam or the CNMI brings unique opportunities and challenges, and one aspect that can often be overlooked is managing taxes. Whether you're a sole proprietor, independent contractor, or freelancer, understanding and meeting your estimated tax obligations is crucial to staying on the right side of both federal and local tax authorities. The guidance below breaks down the basics of estimated tax payments to help you navigate this often-confusing terrain and keep your financial affairs in order.

Unlike traditional employees who have taxes withheld from their paychecks, self-employed individuals are responsible for paying their taxes throughout the year. Estimated tax payments are quarterly payments made to cover income taxes, self-employment taxes, and any other taxes owed.

Who Needs to Make Estimated Tax Payments?

If you are self-employed and expect to owe $1,000 or more in taxes when you file your annual return, you are generally required to make estimated tax payments. This applies to self-employed individuals in Guam and the CNMI who are sole proprietors, partnerships, LLCs, or S corporations.

Importantly, anyone with self-employment income of $400 or more must file Form 1040-SS with the IRS to report their self-employment income and calculate self-employment tax. These quarterly estimated tax payment deadlines apply not just to local territorial self-employment income tax obligations, but also to your federal Form 1040-SS filing requirements. 

The Guam Department of Revenue and Taxation and the CNMI Division of Revenue and Taxation mirror the IRS deadlines for estimated tax payments, making it essential to stay current with both federal and territorial obligations. Self-employed individuals must track and pay estimated taxes to both the IRS and their respective local tax authority. However, it's important to note that FICA tax and Business Gross Receipts Tax (BGRT) follow different, more frequent schedules than quarterly estimated payments, so be sure to track these separately.

When Are Estimated Tax Payments Due?

While the term "quarterly" suggests payments every 90 days, the actual due dates don't follow an even three-month schedule. For the 2025 tax year, estimated tax payment deadlines are:

• First Quarter: April 15, 2025 (covers January 1 - March 31)

• Second Quarter: June 15, 2025 (covers April 1 - May 31)

• Third Quarter: September 15, 2025 (covers June 1 - August 31)

• Fourth Quarter: January 15, 2026 (covers September 1 - December 31)

Note that the second quarter only covers two months, while the third and fourth quarters cover longer periods. This uneven distribution can catch taxpayers off guard, so it's important to mark these specific dates on your calendar rather than assuming a payment is due every three months.

When a deadline falls on a weekend or legal holiday, the due date is automatically moved to the next business day. For example, if January 15 falls on a Saturday, your payment would be due the following Monday. Both the Guam Department of Revenue and Taxation and the CNMI Division of Revenue and Taxation mirror these IRS deadlines for territorial estimated tax payments.

Calculating Estimated Tax Payments

Calculating your estimated tax payments can be a bit tricky, but it generally involves estimating your annual income and working with a tax professional to apply the appropriate tax rates. One approach is to use last year's tax return as a starting point and adjust for any changes in income or deductions. To calculate your estimated tax liability, you can use IRS Form 1040-ES, which provides a worksheet to help you determine the amount you should pay each quarter. Keep in mind that if your income fluctuates throughout the year, you may need to recalculate your estimated payments to avoid underpayment penalties.

Setting Aside Funds

One common pitfall for self-employed individuals is not setting aside enough money for taxes, and it can be challenging to avoid using every earned dollar to cover business expenses or personal needs while also saving for taxes. A good practice is to set aside a percentage of received income for taxes throughout the year. 

Making Your Payments: Proper Notation is Critical

Whether you pay electronically or by check, proper notation of your payments is essential to ensure they are applied correctly to your account. If you are paying by check to the IRS, the Guam Department of Revenue and Taxation, or the CNMI Division of Revenue and Taxation, make sure to clearly note the following information on your check:

• The tax year and quarter the payment applies to (e.g., "2025 Q4 Estimated Tax")

• Your Social Security Number (SSN), or your Employer Identification Number (EIN)

• "Form 1040-ES"  or “Estimated Tax Payment” or the applicable form designation

Proper notation helps the tax agencies correctly apply your payment and avoid processing delays or misapplied payments that could result in unnecessary penalties or interest charges.

Payment Methods: Checks vs. Electronic Payments

When deciding how to submit your estimated tax payments, it's important to understand the differences between payment methods. Credit card and debit card payments are subject to processing fees charged by third-party payment processors, which can add to your overall tax costs. In contrast, payments made by check do not incur these processing fees, making them a more cost-effective option for many taxpayers.

Additionally, the IRS considers a payment made by check to be received on the date it is postmarked by the United States Postal Service (USPS), not the date the IRS actually receives it. This "postmark rule" is particularly helpful for taxpayers in Guam and the CNMI, where mail service has increasingly faced delays. As long as your check is postmarked on or before the payment deadline, it will be considered timely, even if it takes several additional days or weeks to reach the IRS. This provides an important buffer against the unpredictable mail delivery times that can affect the territories.

Utilizing the Electronic Federal Tax Payment System (EFTPS)

Enrolling in the Electronic Federal Tax Payment System (EFTPS) may make the process smoother. EFTPS allows you to make electronic tax payments directly to the IRS, providing a secure and efficient way to fulfill your federal tax obligations. When making electronic payments, you'll be prompted to provide your taxpayer identification number (SSN or EIN) and specify the tax period, which helps ensure accurate application of your payment. Unlike credit card payments, EFTPS transfers funds directly from your bank account without processing fees.

Understanding Penalties for Underpayment

The IRS and local tax authorities take estimated tax payments seriously, and failing to pay enough or paying late can result in significant penalties. The underpayment penalty is essentially interest charged on the amount you should have paid throughout the year but didn't. This penalty is calculated separately for each payment period, which means even if you catch up by year-end, you may still owe penalties for earlier quarters.

The penalty rate is tied to the federal short-term rate plus an additional percentage, and it compounds daily. The IRS calculates the penalty using Form 2210, which determines how much you underpaid and for how long. To avoid penalties, you generally need to pay the lesser of 90% of your current year's tax liability or 100% of the previous year's tax liability (110% if your adjusted gross income exceeded $150,000).

Beyond underpayment penalties, late payment penalties can also apply if you miss the quarterly deadlines entirely. The late payment penalty is typically 0.5% of the unpaid taxes for each month or part of a month the payment is late, up to a maximum of 25% of the unpaid amount. If you file your return late and owe taxes, you may face an additional failure-to-file penalty of 5% per month, which can be reduced if the failure-to-pay penalty also applies.

The good news is that penalties can sometimes be avoided or reduced. If you have reasonable cause for not paying on time, or if this is your first time facing penalties and you have a clean compliance history, you may qualify for penalty relief. Staying proactive by estimating your income accurately and adjusting your quarterly payments can help you avoid these costly penalties altogether.

Catching Up on Past Due Taxes or IRS Penalties

The IRS offers many collection alternatives for businesses and individuals that cannot afford to pay their past due taxes in full. These collection alternatives include submitting an Offer in Compromise, entering into an Installment Agreement, or being placed into Currently Not Collectible Status. In addition to offering collection alternatives, the IRS provides penalty abatement under certain circumstances through the First-Time Penalty Abatement and Reasonable Cause Penalty Abatement programs.

Understanding and managing estimated tax payments is a vital aspect of financial responsibility for self-employed individuals in Guam and the CNMI. By staying informed, setting aside funds regularly, and utilizing tools like EFTPS, you can ensure that your tax obligations are met without unnecessary stress or financial strain.

Not sure where to start? Contact Azarvand Tax Law at info@azarvandtaxlaw.com or book a free 30-minute consultation online at azarvandtaxlaw.com. Consultations are available from 7:00 am - 5:30 pm CHST.