Do I need to file quarterly estimated tax payments?

[Eleden]

My main source of income comes from my full time salaried W-2 income. However, I've started a side hustle this year and expect to bring in an extra $12,000 to $15,000 in 1099 income.

Do I need to file quarterly estimated taxes to the IRS on the 1099 income? Will I be penalized come next year if I don't file quarterly estimates for this year?

[jjquantz]

I am sure that others will chime in, but here are the three ways that I have dealt with it in the past:

1) If I had more withheld than I paid in tax the previous year, I didn't worry about it,
2) If I was SURE that I would have more than 90% of my tax liability for the year withheld, I didn't worry about it,
3) I adjusted withholding to cover what was needed.  Even if you do this the last pay period of the year for thousands of dollars, the IRS will pretend that you had it withheld over the course of the year.

I believe that each of these three will avoid the penalty for underpayment.  Of course, quarterly tax payments will do that, too.

I am not a tax attorney, blah, blah, blah...

[MissPeach]

Basically the key is to make sure you have paid over 90% of your tax liability on time. It doesn't matter if it's estimated payments or through your job. Just make sure not to go below or you'll be assessed a penalty.

[foobar]

The other safe harbor is to pay 100% (110% if your income is over a set amount) of last years taxes.  Assuming you don't lose your job, your normal withholding does it for the first year. After that you can either increase with holding or pay estimated taxes.

If you go the 90% route, make sure you do it through withholding and not by making an estimated payment at the end of the year. There are some screwy rules when you make unequal estimated taxes (they are designed so you don't pay all of your taxes on Jan 14th) where you end up having to figure out when (date wise) every piece of income and deductions happened and then run some math. I tried to do it one year and after about 4 hours I decided to pay the 50 dollar "penalty" even though in theory I should have been in the clear. It was a bit odd getting a 5k refund for overpayment and a penalty for not paying your taxes.

Basically the key is to make sure you have paid over 90% of your tax liability on time. It doesn't matter if it's estimated payments or through your job. Just make sure not to go below or you'll be assessed a penalty.

[MissPeach]

Thanks for explaining that. I had used my job withholding to cover the taxes for a business so I didn't run into that one.

[Eleden]

Thanks for the info everyone. I recently changed my elections because I got hitched, so I'll have to see how that affects my withholding.

I don't think it'll be much of an issue though since $11k of it is going toward our traditional IRAs. If it is an issue, it will be a good excuse to make the wife increase her 401k contributions ;)

[curler]

Thanks for the info everyone. I recently changed my elections because I got hitched, so I'll have to see how that affects my withholding.

I don't think it'll be much of an issue though since $11k of it is going toward our traditional IRAs. If it is an issue, it will be a good excuse to make the wife increase her 401k contributions ;)

Just be careful, increasing her 401k contributions will lower her withholding.

[Eleden]

Just ran the numbers and it looks like I'll be about $1,400 short with our current withholding if I bring in an extra $12,000 :( Guess I'll be filing quarterly estimated payments for this year.

[doyouknowwhy]

You would be surprised that the underpayment penalty is not really that large.

[zachd]

Can confirm what doyouknowhy? said.. the penalty they tacked on my wife for not paying quarterly was something like $25.

We're still trying to get our act together and pay quarterly so we don't have to pay all at once.. but then again using the money to pay down debt might work out better for us so maybe we'll not :)

[foobar]

It tends to something like 2% of the tax due.  The other thing is that if you don't pay estimated taxes, you have to make sure you have the money laying around. 

Can confirm what doyouknowhy? said.. the penalty they tacked on my wife for not paying quarterly was something like $25.

We're still trying to get our act together and pay quarterly so we don't have to pay all at once.. but then again using the money to pay down debt might work out better for us so maybe we'll not :)