What Happens If You Don’t Pay?
If you wait until you file your tax return in April of the following year, you may owe an underpayment penalty.
This is essentially interest charged by the IRS for paying too late—even if you file and pay in full.
How to Avoid the Penalty
You can generally avoid penalties if you pay:
- At least 90% of your current year tax, or
- 100% of your prior year tax (110% for higher-income taxpayers)
A Simple Rule of Thumb
Looking for a suggestion of where to start. For most self-employed/gig workers, a good guide is 25% to 30% of their net income for taxes.
This isn’t exact, but it’s a good starting point.
This article is for informational purposes only and does not constitute tax advice. Every taxpayer’s situation is unique.
Gig Workers: Do You Need to Make Quarterly Tax Payments?
If you’re new to self-employment, there’s one issue that catches almost everyone off guard: no taxes are being withheld from your income.
But the IRS wants to start collecting the tax bill that you are accumulating throughout the year as you owe it. It’s like they think, “Once you owe it, it’s ours.”
That means it’s up to you to pay your taxes throughout the year.
Why Quarterly Payments Matter
When you work for an employer, taxes are withheld automatically. As a self-employed person: no automatic withholding.
You are responsible for paying your own taxes as you earn income.
What Are Quarterly Estimated Payments?
The IRS expects you to pay taxes throughout the year, not just in April. These payments are typically due the last day of April. June, September, and January (following year)
They cover what you owe for Income tax and Self-employment tax (Social Secuity & Medicare - 15.3%)
Bottom Line
If you’re earning income without withholding, you likely need to make quarterly payments.
Questions? Let’s Talk.
Please contact me directly to discuss how this applies to your individual tax situation. I offer a free consultation to help you get started the right way.