How Estimated Tax Payments Work for Side Hustles and Freelancers

Overview

Freelancers and side hustlers usually don’t have an employer withholding federal income and payroll taxes from each paycheck. To cover those liabilities, the IRS requires many self‑employed taxpayers to pay estimated taxes in advance through the year. If you expect to owe $1,000 or more in tax after withholding and credits when you file, you generally must make estimated payments (IRS: Estimated Taxes).

In my practice advising freelance clients, the biggest sources of trouble are inconsistent recordkeeping and waiting until filing season to address tax obligations. Making quarterly estimated payments smooths cash flow and reduces the risk of penalties.

How estimated tax payments are calculated

Estimated taxes are based on your expected:

• Adjusted gross income (AGI)
• Taxable income
• Credits and deductions
• Self‑employment tax (Social Security and Medicare) on net earnings from self‑employment

Steps to calculate a simple estimate:

1. Estimate your total gross receipts for the year.
2. Subtract business expenses to get net profit.
3. Calculate self‑employment tax: generally 15.3% × (net profit × 92.35%) (this reflects the SE tax calculation used on Schedule SE).
4. Compute federal income tax on your taxable income (after the standard deduction or itemized deductions and exemptions).
5. Subtract tax credits and any withholding from other jobs.
6. If the result is $1,000 or more, you should make quarterly estimated payments.

Use Form 1040‑ES and its worksheets for a formal calculation (IRS: Form 1040‑ES). The IRS also offers the Tax Withholding Estimator, which can help freelancers gauge whether they should adjust withholding or make estimated payments.

Due dates and payment methods

Estimated payments are generally due on these dates (when a date falls on a weekend or holiday, it shifts to the next business day):

• April 15 — Q1 (income Jan 1 – Mar 31)
• June 15 — Q2 (income Apr 1 – May 31)
• September 15 — Q3 (income June 1 – Aug 31)
• January 15 (following year) — Q4 (income Sep 1 – Dec 31)

You can pay using the Form 1040‑ES voucher by mail, but most freelancers use electronic options: IRS Direct Pay, the Electronic Federal Tax Payment System (EFTPS), or card payments through approved processors. EFTPS is especially convenient for businesses and self‑employed filers who want to schedule recurring payments.

Safe harbor rules and penalties

To avoid an underpayment penalty, the IRS uses safe harbor tests. You generally avoid a penalty if you pay at least the lesser of:

• 90% of the tax you owe for the current year, or
• 100% of the tax shown on your prior year return (110% if your prior‑year AGI was over $150,000 — $75,000 if married filing separately).

These safe harbor rules are explained on IRS guidance about estimated taxes (IRS: Estimated Taxes). If you miss payments or underpay, the IRS charges interest and may assess a penalty based on the size and timing of the shortfall.

Handling irregular or seasonal income

For side hustles and gig work with fluctuating revenue, use these practical methods:

• Annualized income method: Calculate tax based on the income you actually earned in each period. This can reduce penalties if you earn more income later in the year. The annualized method is described on Form 2210 instructions and in IRS materials.
• Pay when you get paid: Some freelancers make payments each time they receive a large check and then reconcile quarterly.
• Set aside a fixed percentage: Many freelancers set aside 25–30% of gross income in a separate account for taxes. Adjust the percentage based on expected deductions and tax bracket.

For a deeper walkthrough on forecasting irregular income and making quarterly projections, see our guide: Quarterly Estimated Tax Calendar and Calculation Guide (FinHelp).

Example calculation (simple)

Imagine a freelance writer expects $50,000 in gross receipts and $10,000 in deductible business expenses.

• Net profit = $40,000
• SE tax base = $40,000 × 0.9235 = $36,940
• Estimate self‑employment tax ≈ $36,940 × 15.3% ≈ $5,655
• Taxable income after standard deduction (single, 2025 standard deduction may differ; use current year amount when you file) — for illustration assume $40,000 minus $13,850 = $26,150 taxable income
• Federal income tax (approximate using marginal rates) might be ≈ $3,000
• Total estimated tax ≈ $3,000 + $5,655 = $8,655

Quarterly payment = $8,655 ÷ 4 ≈ $2,164. If you already have withholding from another job, subtract that from the total before dividing.

Note: This is an illustrative example — exact numbers depend on current tax brackets, standard deduction, and credits. Always use the latest IRS worksheets or a tax professional for precise amounts.

State estimated tax obligations

Many states have their own estimated tax rules and thresholds. If your state taxes wage or business income, check your state revenue department’s website for due dates, payment methods, and safe harbor rules. State deadlines often mirror federal quarterly dates but check for differences.

Practical tips to reduce surprises

• Track income and expenses monthly. Good recordkeeping is the single best defense against test‑time tax shocks.
• Use accounting software (QuickBooks, Wave, or a spreadsheet) and categorize expenses as you go. This makes year‑end reconciliation and estimated tax calculations faster.
• Consider making payments more frequently than quarterly (e.g., monthly) if your income is irregular. Smaller, frequent payments ease cash flow.
• If you start a side hustle midyear, annualize expected income before deciding whether to make estimated payments immediately.
• Revisit your estimate after any major change: a new client, a big project, or a downturn.
• If you underpaid earlier in the year, you can catch up by increasing later payments; use the safe harbor tests to avoid penalties.

Common mistakes to avoid

• Waiting until tax filing season to calculate what you owe.
• Forgetting self‑employment tax when estimating — many freelancers account only for income tax and are surprised by SE tax.
• Using gross receipts instead of net profit (after business expenses).
• Ignoring state estimated tax requirements.

Additional resources and internal guides

• IRS: Estimated Taxes — https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes
• IRS: Form 1040‑ES and payment vouchers — https://www.irs.gov/forms-pubs/about-form-1040-es

Related FinHelp articles:

• How to Calculate and Pay Estimated Taxes for Gig Income: https://finhelp.io/glossary/how-to-calculate-and-pay-estimated-taxes-for-gig-income/
• Safe Harbor Rules for Estimated Tax Payments: https://finhelp.io/glossary/safe-harbor-rules-for-estimated-tax-payments-avoiding-penalties/
• Quarterly Estimated Tax Calendar and Calculation Guide: https://finhelp.io/glossary/quarterly-estimated-tax-calendar-and-calculation-guide/

Final thoughts and professional perspective

In my work with freelancers and side hustlers, I’ve found that building one simple habit—setting aside a fixed percentage of each payment into a dedicated tax account—prevents most problems. Accurate records and conservative estimates reduce stress and keep you in control of cash flow.

This article is educational and does not replace personalized tax advice. For individual guidance tailored to your situation, consult a CPA, enrolled agent, or licensed tax professional.

Sources: IRS, Estimated Taxes; IRS Form 1040‑ES; IRS Tax Withholding Estimator. (See links above.)