Taxpayers who are gig workers or otherwise self-employed make estimated tax payments to the IRS every quarter. This article notifies readers of an upcoming payment deadline, explores the details of estimated tax payments, and looks at a method to assist people whose income isn’t earned uniformly throughout the year.
If you’re a gig worker or otherwise self-employed, you don’t have taxes withheld from a paycheck. You must make quarterly estimated tax payments to the IRS for taxes on that income. Be advised the fourth quarter 2021 estimated tax payment deadline for individuals is Tuesday, January 18, 2022.
A pay-as-you-go system
If you should have some withholding from paychecks or payments you receive. You may still have to make estimated payments if you receive other types of income such as:
If you fail to make the required payments, you may be subject to an underpayment penalty.
Generally, you need to make estimated tax payments for 2021 if you expect:
Quarterly due dates
If you’re new to estimated tax payments, be prepared to submit them throughout the year. The due dates are typically April 15, June 15, September 15 and January 15 of the following year. However, if the date falls on a weekend or holiday, the deadline is the next business day.
Estimated tax is calculated by factoring in expected gross income, taxable income, deductions and credits for the year. The easiest way to pay estimated tax is electronically through the Electronic Federal Tax Payment System. You can also pay estimated tax by check or money order using the Estimated Tax Payment Voucher, or by credit or debit card.
Seasonal businesses
Most individuals make estimated tax payments in four equal installments. However, you may be able to make smaller payments during some quarters under an “annualized income method.” This can be useful to people whose income isn’t uniform over the year, due to a seasonal business or random sales at various times during the year. The annualized method involves calculating year to date income, “annualizing” it for the year and then calculating the tax. The estimate payment for the quarter is based on the annualized tax reduced by the amounts previously paid and future quarterly payments. For example, June 15 payment is equal to 50% of the annualized tax less amounts previously paid.
The correct amount
Estimated tax payments fulfill your obligation without overpaying the federal government. Contact our firm with any questions you may have about setting up estimated tax payments or using the annualized income method.
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com. You may also contact Denise Felber, Tax Partner, at dfelber@hogantaylor.com
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.