There’s a big tax deadline approaching this month, and it’s for anyone that picked up a side gig in 2022. Unlike traditional full-time jobs qualified as W2 employment (wherein your employer withholds taxes on your behalf), contractors and freelancers are responsible for paying their own estimated quarterly taxes to the IRS. Not doing so — or paying too low of an amount — can incur penalties and fees.
There is one more chance this month to submit final 2022 tax payments to the IRS, so if you picked up a side hustle last year, you’ll want to mark January 17 on your calendar. That is the deadline to submit the final, fourth quarter estimated tax payment for 2022 — and pad in any extra amount owed so you don’t get a huge tax bill come April.
In general, the estimated tax schedule “applies to income from self-employment, investments, gig economy work and small businesses,” according to CNBC. Though, the IRS has cautioned that those who were fearing 1099-K forms for any goods sold through a third party marketplace due to the government lowering the reporting threshold to $600 won’t have to account for that in 2022. The 2022 tax year will be considered a “transition year” until it fully goes into effect in 2023.
If you’ve paid on time and in full the amount owed over the four quarters (with previous payments due on April 15, June 18 and September 15), you won’t have any penalties or interest to pay. CNBC noted that generally the amount is calculated as such: “The lesser of 90% of your 2022 taxes or 100% of your 2021 bill if your adjusted gross income is $150,000 or less.” There’s a helpful tax withholding calculator on the official IRS site if you want help calculating specific amounts.
If you weren’t able to make those payments on time or didn’t pay enough and have taxes owed for 2022, you could owe a late payment penalty of 0.5% of the unpaid balance per month, up to 25% as well as interest on the amount owed.
There are a few easy ways to pay the fourth quarter tax installment by January 17, as noted on the IRS payment portal website:
- IRS Direct Pay with your bank account
- IRS Online Account if you have one set up
- Electronic Federal Tax Payment System
- Online payments with credit card or digital wallet
If you end up owing a lump sum after filing your 2022 taxes, rest assured the IRS does offer payment plans that you can arrange through the official IRS website.
If you want to plan ahead for the 2023 tax cycle, here are the four quarterly installment dates to know for this year, per TurboTax: April 18, June 15 and September 15.
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