Overview of quarterly tax payments - questions

[nac09]

Basically, I would love answers to most of the questions on the event overview page: 

• Why do I have to pay quarterly taxes and how can I avoid it?
• Is there an income threshold for making quarterly payments? If so (and even if not), how much does one generally have to pay? 
• I just have a side gig - do I really need to make estimated tax payments?
• What’s the penalty if I don’t pay quarterly self-employment taxes?
• Do I have to pay quarterly estimates to my state too?
• And finally, could you point me toward good resources for getting started with making quarterly payments?

Thank you!

[Cindy4]

The tax system is a "pay as we go" system.  That means that as we earn taxable income through the year, we pay the tax due on it.  If you don't have a profit in a given quarter, you would not be required to pay tax for that quarter.  

You're required to pay quarterly payments if you owe more than $1,000 in tax at the end of the year to avoide underpayment penalties.  If your side-gig has profit low enough that your regular W-2 job withholding might cover it, you may not need to make estimated tax payments.  Here is a good overview of determining if and what to pay.

The penalty interest rate is currently 8% and the amount of penalty is usually 5% of the tax due up to 25% of underpaid taxes.  If you are in a state without income tax, you don't have to worry about estimated payments as a sole proprietor, but you will want to check with the state you are in to be sure about their requirement.  

Here is a good resource for how to make estimated payments.

[claywallace]

To follow up on your question about state estimated taxes, it does depend on your state.  Some states require quarterly payments when you owe and will penalize you if you do not, and some states do not require quarterly payments in which case you can pay any balance due at year end by the due date.  

Cheers!