Who Must Pay
If you expect to owe 1000 or more in federal tax after subtracting withholding, the IRS requires quarterly payments. This applies to freelancers, independent contractors, sole proprietors, and anyone with significant investment income not subject to withholding.
Deadlines and Safe Harbor
Payments are due April 15, June 15, September 15, and January 15. The safe harbor rule protects from penalties if you pay 100% of prior year total tax (110% if AGI exceeds 150K) across four equal payments.
Self-Employment Tax
Self-employed individuals pay 15.3% (12.4% Social Security + 2.9% Medicare) on 92.35% of net SE earnings, in addition to income tax. On 60K net SE income, SE tax alone is approximately 8,478.
W-4 Strategy for Side Hustlers
If you have W-2 income plus side income, increasing W-4 withholding is often simpler than quarterly payments. Withheld taxes are treated as paid evenly throughout the year regardless of when actually withheld.
Originally published on WealthWise OS Blog.