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DevonH
Level 2

Gig Work, Estimated Tax, and Withholding

I just started gig work as a side job back in June and am confused about if I need to pay an estimated tax for that. If so, how do I determine how much to pay or is that already determined by the IRS (and how would I find that)? Also, I do have a full time job that does deduct taxes and saw somewhere that I could have them withhold some to account for that. What is the easier option and how much should I withhold from my check if going through my employer? Thanks for your help!

1 Best answer

Accepted Solutions
johnw1000
Employee Tax Expert

Gig Work, Estimated Tax, and Withholding

Hello 

I hope your day is going well.  I see you have a few questions.  Lets start with the first. 

Do you need to pay estimated taxes on your side gig?  The short answer is yes.  This side gig is considered self-employment income and the IRS requires that you determine what you profit will be (income minus expenses) and then pay taxes on that every 3 months or so.   Once you determine what your profit will be, you will be required to estimate two types of taxes, federal income tax and what is called self-employment tax (i.e. social security and Medicare tax). 

 

Lets start with the the self-employment tax.  That will be approx. 15% of your profit.   

 

Now the federal income tax is a little harder.  You have to estimate what you think your yearly side gig income will be and add that to your income from your full time job to determine what will be your tax rate.    Here are the tax brackets for 2022 https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022 

 

Once you have estimated your tax bracket, you take that percentage and multiple it by the profit for the three months in question and add that to the self employment tax you had estimated and send that to the IRS.  Wow, what a complicated process huh.

 

My suggestion is first estimate what you think the tax bracket is you are going to fall into will be.   Lets say it is the 22% category.  So you probably will pay approximately 37% tax on any side gig profits.  So every three months estimate what your profit is going to be, multiply that by 37% and send that in the IRS.  https://www.irs.gov/payments

 

You can have your employer take extra money out and send it in to cover this but that would require you estimate your taxes for your side gig for the entire year, you then divide that amount by the number of paychecks you have remaining for the year and ask them to take out that much extra for withholding.   If that is the case you would need to fill out a new w4 and put that extra amount in box 4c.  Here is a link with more information on the w-4 form.  https://www.irs.gov/forms-pubs/about-form-w-4

 

So sorry this is such a complicated process.   I hope this helps.  

 

John

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9 Replies
johnw1000
Employee Tax Expert

Gig Work, Estimated Tax, and Withholding

Hello 

I hope your day is going well.  I see you have a few questions.  Lets start with the first. 

Do you need to pay estimated taxes on your side gig?  The short answer is yes.  This side gig is considered self-employment income and the IRS requires that you determine what you profit will be (income minus expenses) and then pay taxes on that every 3 months or so.   Once you determine what your profit will be, you will be required to estimate two types of taxes, federal income tax and what is called self-employment tax (i.e. social security and Medicare tax). 

 

Lets start with the the self-employment tax.  That will be approx. 15% of your profit.   

 

Now the federal income tax is a little harder.  You have to estimate what you think your yearly side gig income will be and add that to your income from your full time job to determine what will be your tax rate.    Here are the tax brackets for 2022 https://www.irs.gov/newsroom/irs-provides-tax-inflation-adjustments-for-tax-year-2022 

 

Once you have estimated your tax bracket, you take that percentage and multiple it by the profit for the three months in question and add that to the self employment tax you had estimated and send that to the IRS.  Wow, what a complicated process huh.

 

My suggestion is first estimate what you think the tax bracket is you are going to fall into will be.   Lets say it is the 22% category.  So you probably will pay approximately 37% tax on any side gig profits.  So every three months estimate what your profit is going to be, multiply that by 37% and send that in the IRS.  https://www.irs.gov/payments

 

You can have your employer take extra money out and send it in to cover this but that would require you estimate your taxes for your side gig for the entire year, you then divide that amount by the number of paychecks you have remaining for the year and ask them to take out that much extra for withholding.   If that is the case you would need to fill out a new w4 and put that extra amount in box 4c.  Here is a link with more information on the w-4 form.  https://www.irs.gov/forms-pubs/about-form-w-4

 

So sorry this is such a complicated process.   I hope this helps.  

 

John

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DevonH
Level 2

Gig Work, Estimated Tax, and Withholding

Thank you so much for your help John! It does seem very complicated, but it gives me a place to start to figure it out.

DevonH
Level 2

Gig Work, Estimated Tax, and Withholding

Sorry, I just thought of this as well, but what about state tax on gig work? How would I calculate that?

johnw1000
Employee Tax Expert

Gig Work, Estimated Tax, and Withholding

It can vary in each state but generally all you pay is the state tax rate on your profits.  No extra tax for self employment, just income tax. Some states are a flat rate on all the income you get, from your full time job and your gig work and other states have a variable rate - goes up as you make more income.  If you live in a variable tax rate state you would add all of your income and see what rate you fall into and use that percentage for your gig profit.  And like the federal tax you will want to send that money in every three months.   If you search the department of revenue for your particular state you can see what the state tax requirements are.   What state are you thinking of?

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DevonH
Level 2

Gig Work, Estimated Tax, and Withholding

Hi John thanks for getting back to me! It would be Indiana.

johnw1000
Employee Tax Expert

Gig Work, Estimated Tax, and Withholding

Looks like they are flat tax rate of 3.23% and here is the link to their dept. of revenue website on estimated tax payments. https://www.in.gov/dor/individual-income-taxes/payments-and-billing/estimated-tax/ 

 

Signing off for the day but will check later this evening if you have any other questions.

 

Have a great evening!!

John

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DevonH
Level 2

Gig Work, Estimated Tax, and Withholding

Okay, thank you! So I would just need to multiple that 3.23% to what I make within that 3 month period and send that in? 

johnw1000
Employee Tax Expert

Gig Work, Estimated Tax, and Withholding

Correct.  Income-expenses = profit.  Multiply by 3.23 and send into the Indiana.   Do that every three months. 

 

Hope you have a great evening!

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DevonH
Level 2

Gig Work, Estimated Tax, and Withholding

Thank you, you as well!

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