As a gig worker, you are not an employee of the companies your work for but rather an independent contractor. Your status as an independent contractor means that your clients or gig assignments do not withhold money from your paycheck for federal, state, social security, or Medicare taxes. Although saving money for taxes can be challenging, you must make federal and state tax payments once per quarter. State taxes do not apply if you live in one of the nine states that does not collect income tax.
Your accountant or tax software determines the amount you owe for social security and Medicare for 2021 when you file your tax returns in early 2022. The quarterly payments for this year are as follows:
- April 15, 2021, for income earned between January 1 and March 31
- June 15, 2021, for income earned between April 1 and May 31
- September 15, 2021, for income earned between June 1 and August 31
- January 15, 2022, for income earned between September 1 and December 31, 2021
How to Make Sure You Have Enough Money to Pay Your Taxes
Coming up with a large lump sum to pay your taxes every quarter can be challenging. A better idea is to take advantage of tools such as the Tax Savings feature with an indi for Jobblers account. Indi offers a tool that enables you to automatically divert money from your gig and independent work towards a tax savings account. You do this by designating a percentage of each deposit that should go to a sub-account titled Tax Savings. The program automatically adjusts if you fall behind or get ahead on your tax savings.
Saving Money for Taxes: How Much Do You Need?
The amount of federal and state income tax you pay depends on your tax bracket. You can use your earnings from previous years to gauge how much you might make this year. Keep in mind that most taxpayers qualify for a standard deduction that reduces their taxable income. The lowest tax bracket is 10 percent, and the highest is 37 percent.
The Internal Revenue Service (IRS) requires freelance workers to pay quarterly taxes if they would expect to owe at least $1,000 at the end of the year. You can click on the link above to see where your projected income falls within that range.
Remember You Can Take Several Deductions to Lower Your Tax Burden
While it is always better to save too much rather than too little for taxes, the amount you must pay could be lower than you think due to self-employed business deductions. For example, you can deduct the amount you paid for a uniform to work at a gig assignment or the cost of maintaining a home office. Be sure to check this IRS Guide to Deducting Business Expenses to help you plan accordingly.
Paying taxes as an independent worker can seem overwhelming at first. However, it does not have to be when you use the many savings and budgeting tools available to you.
About the Author: Lisa Kroulik has worked as a freelance content marketing writer for 10 years. She loves the work and the lifestyle it affords. Learn more about Lisa’s work and availability through Writer Access.