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CRA Tax Installments for Self-Employed Canadians: How to Avoid Penalties

2026-05-12 · 6 min read

Why the CRA Wants Your Tax Money Before April


When you are employed, your employer withholds income tax and CPP from every paycheque. The CRA gets paid throughout the year. When you are self-employed, nobody withholds anything — so the CRA requires you to send quarterly tax installments instead.


Many first-year freelancers have no idea this is coming. They file their first return, pay the balance owing, and then receive a notice telling them to start making installments for the current year. Missing these payments triggers interest charges that compound daily.


Who Has to Pay Installments?


You are required to make quarterly installments if your net tax owing exceeds $3,000 in the current year and in either of the two prior years.


  • In Quebec, the threshold is $1,800 for provincial tax (Revenu Québec handles this separately)
  • "Net tax owing" means your total tax minus amounts already withheld at source (e.g., from a part-time T4 job)

    • If you are in your first year of freelancing and had employment income last year with full withholding, you likely will not owe installments yet. But in year two, once that first self-employed return shows a large balance owing, installments kick in.


    When Are Installments Due?


    The CRA installment due dates are the same every year:


  • March 15
  • June 15
  • September 15
  • December 15

    • You make four payments per year, each covering roughly one quarter of your estimated annual tax. If a due date falls on a weekend or holiday, the payment is due the next business day.


    How Much Should You Pay?


    The CRA offers three calculation methods. You can use whichever one results in no interest charges:


    1. No-calculation option: Pay the amounts the CRA tells you. They send an installment reminder (Form INNS1 or through My Account) with suggested amounts based on your prior-year tax.


    2. Prior-year option: Divide your total tax owing from last year by four. Pay that amount each quarter.


    3. Current-year option: Estimate your current-year income, calculate the expected tax, and divide by four. This is useful if your income has changed significantly — for example, if you earned much less this year and want to pay smaller installments.


    The safest approach for most freelancers is to pay at least what the CRA suggests on the installment reminder. If you pay less and your actual tax ends up higher, you will owe installment interest.


    What Happens If You Miss a Payment?


    The CRA charges installment interest on late or insufficient payments. The interest rate is set quarterly and is currently tied to the prescribed rate plus 4%. As of 2026, this is roughly 8–10% annualized — significantly higher than most savings accounts.


    Key points about installment interest:


  • Interest is calculated daily from the installment due date until April 30 of the following year
  • Interest compounds — it accrues on unpaid amounts and on prior interest
  • If your total installment interest exceeds $1,000, the CRA may also charge an installment penalty equal to 50% of the interest that exceeds the greater of $1,000 or 25% of the installment interest you would have owed if you made no payments at all

    • In practice: missing one quarterly payment by a few weeks is a minor cost. Missing all four is expensive.


    The Smart Freelancer Strategy: Set Aside 30%


    The simplest way to ensure you always have enough for installments — and for your year-end balance — is to set aside a percentage of every payment you receive:


  • 30% is a safe starting point for most sole proprietors
  • This covers federal and provincial income tax plus CPP contributions
  • Put it in a separate high-interest savings account so it earns something while it waits
  • Transfer installment amounts out on each due date

    • If your income is above roughly $110,000, consider setting aside 35–40% to account for higher marginal rates and CPP2 contributions.


    Installments and CPP: A Double Hit


    Remember that as a self-employed person, you pay both the employee and employer portions of CPP — currently about 11.9% on net self-employment earnings up to the annual maximum. This is on top of income tax.


    Your installment amounts should account for CPP, not just income tax. The CRA's suggested installment amounts on your reminder notice already include CPP, so if you follow those, you are covered.


    What If Your Income Drops Mid-Year?


    If your freelance income drops significantly — say you took parental leave or lost a major client — you can reduce your installment payments using the current-year option. Calculate your expected annual tax based on actual income so far and pay proportionally.


    Just be careful: if you underestimate and end up owing more, installment interest applies to the shortfall. When in doubt, it is better to overpay installments slightly and receive a refund at filing time.


    Track Your Income and Expenses Year-Round


    Accurate installment planning requires knowing your net income throughout the year — not just at tax time. If you track your revenue and T2125 expenses as you go, you can estimate your quarterly tax obligation with confidence.


    ClaimHero helps Canadian sole proprietors log expenses by T2125 category all year long. With running totals of your deductions always visible, you can estimate your net income at any point and calculate whether your installment payments are on track. Free to start — no credit card required.


    Track your T2125 expenses year-round with ClaimHero — free to start.