I started a new job this year. My boss, who owns the company hadn’t decided whether I would be treated as a contract worker or employee until a few weeks ago. He decided to treat me as an employee, however, for the first seven months or so no taxes have been taken out of my check nor have I made estimated tax payments. Will I be penalized for not making estimated payments? What should I do? Thanks!

Irregular income + day job: If your irregular income is a pass through entity (sole proprietor, single person LLC, etc), then it’s essentially one pot of money. If this is the case, all the IRS is concerned with is that you pay enough taxes, and pay them on time. The US tax system is a pay-as-you-go system, which means you owe income tax when the money is earned. The good thing is that the IRS considers payroll withholdings as spread throughout the year, so if you backload your withholdings from your day job at the end of the year, then you should be covered. You can also increase your estimated tax payments at the end of the year if a lot of your side income comes near the end of the year. This would be common for a new business which might not have a lot of revenues at the beginning of the year, but which could increase as the year progressed.

Regarding a new business: You would still have to pay estimated taxes on the income, but as previously mentioned, you could pay only what you owe, when you owe it. The tax system is a pay-as-you-go system, so if your earnings at the beginning of the year are light, then you wouldn’t owe much. The other thing to be aware of is safe harbor laws, which basically state that as long as you pay X-amount above your previous year’s tax obligation, then you will be OK in the eyes of the IRS.

Finally, day job income is pretty straight forward, but if you are dealing with self-employment or small business income, I highly recommend speaking with a small business advisor or accountant – they can explain these details as they apply to your situation and often help you find ways to save money. I use an accountant for all my tax needs and highly recommend it (I have saved much more on taxes than I have spent on professional tax services – always a win in my book!).

What if you have a day job and make $200,000 and have normal taxes withheld, and earn an irregular income of maybe $30-80,000. Do you still have to pay estimated taxes on that side income?

Also, what if you launch in February, and have no idea what your side income will be that first year, but for 3 months you have a sense. Do you still pay, or can you wait a fair full year cycle to get a better sense?

Thx!

Sam

You can do a free electronic transfer to avoid fees, but if you insist on paying with your credit card, then you are probably out of luck in avoiding fees.

I wish there was a way to pay 1040-ES taxes without the total rip-off 2.49% charged by the tax payment companies. Why can’t the IRS accept credit cards and get rid of the highway robbery middle man?

This may change as the government needs more and more revenue, but I haven’t heard of them coming after self-employed folks. Now, if you have employees, you best be on time, especially with Social Security taxes or you will get a knock at the door.