What Are Instalment Payments?
<p><em>All superheroes have their weakness. For Superman, it's kryptonite, while for Iron-Man, it's his artificial heart that keeps him alive. Since freelancers and self-employed workers are mostly superheroes who manage everything, what is their nemesis? If you look at what they say, it is instalment payments. But what are instalment payments and why does it put so much stress on entrepreneurs? Let's take a closer look.</em></p> <h3><strong>What are instalment payments?</strong></h3> <p>Initially, we thought <a href="https://www.momenteo.com/blog/for-the-selfemployed-what-exactly-is-bookkeeping">bookkeeping</a> gave the most insomnia to the self-employed, but we were wrong. Four times a year, some people, including many freelancers, have to make instalment payments. This seems to be a big source of concern for many. But what exactly are instalment payments? In short, think of it as taxes. Note that if you live in Quebec, you will have to pay instalments to the provincial and federal levels of government.</p> <p>According to <a href="https://www.revenuquebec.ca/en/citizens/income-tax-return/paying-a-balance-due-or-receiving-a-refund/instalment-payments/">the Revenu Québec website</a>, instalment payments, also known as quarterly payments, are how you pay your taxes, and certain contributions if applicable: Pension Plan, Health Services Fund, Prescription Drug Insurance Plan, Quebec Parental Insurance Plan. If eligible, self-employed workers and freelancers must then keep some of their income set aside to pay their taxes. Payments are due four times a year: March 15, June 15, September 15 and December 15.</p> <h3><strong>Who has to make instalment payments?</strong></h3> <p>Only certain individuals have to pay instalment payments. Specifically, it is people whose taxes are not deducted directly from their income throughout the year. So, a person who pays taxes on each of his or her payrolls does not need to make instalment payments. Since self-employed workers and freelancers do not pay taxes at source, they are required to pay them four times a year. </p> <p>There are also certain conditions to be met. First, the net tax you think you will have to pay for a current year must be above $1800. Then, we must take into account the net tax payable if it exceeds $ 1800 for one or the other of the last two years. In short, the magic amount to remember here is $1800. </p> <h3><strong>How much do I have to pay exactly?</strong></h3> <p>If you have to make instalment payments, how do you know exactly how much you owe? Of course, you can check with a financial professional, or contact the Agence du Revenu or Revenu Québec. Note, however, that the Canadian government has provided you with a table to help you calculate your instalments for the current year. You only have to fill it out to find out what you need to pay. Be careful to check the Quebec box if you live in this province as the calculations are not exactly the same.</p> <p>There are also different methods that can help you know how much you need to pay for your instalments. On <a href="https://www.canada.ca/en/revenue-agency/services/payments-cra/individual-payments/income-tax-instalments/options-calculate.html">the Canada Revenue Agency website</a>, it shows the method without calculation. This method is used if your income is similar from one year to the next. There is the method of the previous year, and it is relevant if your income is similar to that of the previous year, but not that of two years ago. Then, there is the method of the current year, and it can be used if your income is very different from that of previous years. If necessary, consult a professional to understand which calculation method is the most advantageous for your situation.</p> <h3><strong>How will I be informed when I have to pay my deposits?</strong></h3> <p>The government will send you a letter twice a year reminding you that you must make your instalment payments. A reminder will be sent in February for March and June payments, while another will be sent in August for September and December payments. These letters are sent to people who will probably have to pay make payments. Therefore, check if this is really the case before sending your payment.</p> <h3><strong>How do I pay my instalment payments?</strong></h3> <p>On the federal side, you have three choices: you can pay your instalments in person, by mail by sending a cheque or online. If you wish to pay in person, you can go directly to your financial institution or to a Canada Post counter. If you prefer to pay online, you can go through your financial institution or through the CRA's My Payment service.</p> <p>In Quebec, you can pay your instalment payments via the internet through the online payment service of a recognized financial institution or from your Revenu Québec account. You can also pay by going to a financial institution or send a cheque and payment slip by mail.</p> <h3><strong>What happens if I don't pay on time?</strong></h3> <p>Self-employed workers and freelancers must put the four payment dates on their calendar to avoid being penalised. Precisely, if you forget to pay your instalments, you will have to pay interest and penalties. For example, Quebec charges around 17% – hence the importance of being disciplined. Why not create a reminder and deposit it a few weeks before to avoid any trouble?</p> <h3><strong>Any questions?</strong></h3> <p>In conclusion, just because you decide to become self-employed, or freelancer doesn't mean you don't have to pay taxes. If you have questions or the mention of instalment payments gives you cold sweats, why not talk to an accountant? A professional can guide you and even give you advice on how to pay less. But how to find a competent financial professional? We talk about it in our article <a href="https://www.momenteo.com/blog/how-to-choose-an-accountant-for-your-business">How to choose the perfect accountant</a> for your business. Good luck and don't forget to make your instalment payments!</p>