I have a W2 for a $130k/yr salary and I have standard deductions. I am also a 1099NEC that pays between $5k-$30k/year. Should I make quarterly estimated tax payments on my 1099NEC side gig to the IRS and/or CT DRS? If so, how much do I need to pay? Also, if I do not pay quarterly estimated tax payments, would the IRS/CT DRS levy any penalties or would I need to reconcile at the end of the year?
Hi, @GEAtreasurer. Thanks for the question.
Starting at the end, because it's the easiest answer, yes, both the IRS and CT DRS will levy an underpayment penalty if you owe them money when you do your taxes next spring.
There are three main "safe harbor" provisions to avoid the penalty, even if you owe:
- Owe less than $1,000
- Owe less than 10% of your total tax
- (For 2021, line 37 of your 1040 is less than 10% of line 24.)
- Pay 100% of your previous year's taxes.
The easiest of these to meet is #3. You can look at line 24 of your 2021 1040, and pay at least that amount throughout the year, through withholding or quarterly payments. Withholding is deemed to be done equally throughout the year (whether it actually was or not), so if you've missed the first two payments, the more economical thing may be to increase your W2 withholding.
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