Do You Need to Pay Q4 Estimated Taxes By January 15?
Self-Employed Individuals (Including Gig workers)
If you are a gig economy worker or have part-time consulting income, you are subject to estimated tax reporting with Q4 taxes due January 15. Many self-employed individuals are unaware that they are responsible for self-employment tax (Social Security and Medicare taxes) which can be as high as 15.3%.
Some employees may need to pay estimated income taxes to avoid penalties for underpayment of tax.
(1) Due to Tax Reform many individual and business tax deductions were eliminated. If you had large withholding exemptions in 2017 and did not adjust your 2018 Form W4 withholding, your withholding may be too low as many personal tax deductions were eliminated. This could cause your tax refund to be lower or even worse cause a balance due with your tax return unless Q4 estimated taxes are paid.
(2) If you switched jobs your withholding generally starts over at lower tax rates than your actual marginal rate.
(3) Employees with equity compensation (restricted stock units, employee stock options) may pay tax withholding at the flat 22% bonus rate which may be lower than their actual tax rates. After Tax Reform, singles face the highest brackets pretty quickly, The 32% bracket starts at $157,500 taxable income and 35% bracket starts at $200,000.
(4) If you have other income not subject to withholding (interest, dividend, capital gains, rent, partnership income). you may also be under-withheld.