Cindy4
Employee Tax Expert

Business & farm

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.

**Please say "Thanks" by clicking the thumbs up icon in a post
***Mark the post that answers your question by clicking on the "Mark as Best Answer"