1099 income and taxes

[DMdoc]

Hi all,

I have asked a few questions before about 1099 and solo 401k percentages but now have a question about the taxes (~20%). I make a variable amount each month for my side gig(s), but it will come out to about $15k-20k each year I'm thinking, maybe more as the years go on and more opportunities arise.

How do I pay the taxes quarterly or should I just take out extra from my W2 each paycheck? Is there a good calculator to figure out how much to take out? I guess I can just take out $6k for the year and if it's actually less, then I will get a refund.

I know I probably should have figured this out earlier in the year but the income is turning out to be more than I thought. Now hubby is worried we will get fined  

[DMFA]

As long as you settle up with the IRS in April, they don't care when or how they get their share. You'll owe both the employee's and employer's share of FICA [(6.2% SS + 1.45% MCR) · 2] = 15.3% on your 1099 income in addition to withholding at the usual brackets. There are calculators for this. More info here: https://www.irs.gov/taxtopics/tc554.html

I managed this problem by increasing my wife's withholding from her usual employed job by adding an additional amount to be withheld on her W-4 in lieu of making estimated quarterly payments. Worked fine for us since her 1099 income was only a couple a few tens of thousands.

If you have primarily 1099 income, though, making six-figure payments at tax time might not be a great thing for you, hence the quarterly schedule.

[spiritrider]

DMFA wrote:

As long as you settle up with the IRS in April, they don’t care when or how they get their share.

Click to expand...

Your first sentence is most definitely not true. While withholding is treated as having been withheld equally during the year, if you have an underpayment at tax time and you don't meet one of the safe harbors you will be subject to penalties. The same is true if your estimated taxes are not in equal installments or tailored to the the distribution of income during the year.

[jfoxcpacfp]

DMdoc wrote:

I have asked a few questions before about 1099 and solo 401k percentages but now have a question about the taxes (~20%). I make a variable amount each month for my side gig(s), but it will come out to about $15k-20k each year I’m thinking, maybe more as the years go on and more opportunities arise. How do I pay the taxes quarterly or should I just take out extra from my W2 each paycheck? Is there a good calculator to figure out how much to take out? I guess I can just take out $6k for the year and if it’s actually less, then I will get a refund. I know I probably should have figured this out earlier in the year but the income is turning out to be more than I thought. Now hubby is worried we will get fined

Click to expand...

Best to up your withholding - maybe a large chunk in December if you have another check coming. Probably too late but a good plan for next year. The reason is that, as spiritrider said above, the IRS truly doesn't care when you withhold taxes. You can withhold your whole tax liability in December and it is treated as if paid in throughout the year. Estimated payments, otoh, are counted based upon the date paid.

[DMFA]

Yeah I completely glossed over that important piece. If your expect to owe > $1000 in April, you should pay estimated quarterly. There's no "interest-free loan" for that. Again, augmenting your withholding from your employed job, if done correctly, should cover that, esp if you're not earning much on 1099.

Here's the full info: https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes?_ga=1.127920970.698641479.1478107455

I better watch it...and I'd better tell my non-physician sole proprietor friend that she's unnecessarily paying tax penalties! I apologize for the incorrect statement.

[Zaphod]

The safe harbor rules are pretty easy and especially if this is the first year, you wont be penalized anyway. If you receive varying checks there are schedules for that that will also make you penalty free. The penalty is also tiny, I dont pay quarterly, checks are wildly different.