Estimated Taxes 101: A Guide for Freelancers and Side Hustlers
If you started earning money from a side hustle, you may have gotten a very interesting surprise at tax time: you owed money! Maybe not a lot of it, and on top of the tax bill itself, a penalty for good measure!
That's not the IRS being mean; this is way more common than you'd think. This happens when you earn income without any tax withheld along the way. The fix is not complicated once you understand how it works, but it does require you to treat taxes as an ongoing task rather than something you deal with once a year.
What Are Estimated Taxes and Why They Exist
The US Tax system runs on a pay-as-you-go basis, so the IRS expects to receive tax payments as you earn income throughout the year, not in one lump sum the following year.
For W-2 employees, this happens automatically. Your employer withholds income tax, Social Security, and Medicare from every paycheck and sends it to the IRS on your behalf. You barely think about it until you look at your net paychecks and wonder where everything went, of course.
Freelance and side hustle income doesn't have that built-in withholding. Nobody is taking a cut before the money hits your bank account, so the IRS requires you to pay it yourself in the form of estimated payments made four times a year.
These estimated payments cover two things:
- Income tax on your net earnings
- Self-employment tax, which generally covers Social Security and Medicare taxes.
Self-employed individuals generally pay both the employee and employer portions.
Who Actually Needs to Pay Them
As a general starting point, you may need to make estimated tax payments if you expect to owe at least $1,000 in tax after subtracting withholding and refundable credits. Other IRS rules also determine whether estimated payments are required.
Situations where estimated payments are common:
- Freelancers and independent contractors
- Gig workers (rideshare, delivery, other platforms)
- Small business owners and sole proprietors
- Anyone with meaningful investment income (rental income, gains from sold stock)
One more thing to note: if you also have a W-2 job, your withholding might already cover a smaller side hustle. Adjusting your W-4 withholdings at your day job is sometimes a simpler alternative than filing quarterly payments at all.
How Much to Pay: The Basic Math
The IRS provides safe harbor rules that can help taxpayers avoid an underpayment penalty. Generally, this means paying enough tax throughout the year to meet one of these targets:
- 90% of your current year's tax liability, or
- 100% of last year's tax liability (110% if your prior year income was above a certain threshold).
If your income is predictable, the prior-year safe harbor is usually the easiest to calculate since you already know the number.
A simple approach is to take your expected net income, apply the self-employment tax rate, then add your expected income tax based on your bracket. The IRS Form 1040-ES worksheet walks you through this in more detail, and it's worth a look. If you use tax software, it can usually generate the number for you based on your prior-year return.
The Quarterly Deadlines
Despite the name, “quarterly” payments aren't spaced into neat three-month blocks. For 2026, the four estimated tax payment due dates are:
- April 15, 2026
- June 15, 2026
- September 15, 2026
- January 15, 2027
If a due date falls on a weekend or legal holiday, the deadline generally moves to the next business day.
Estimated payments don't necessarily have to be four equal 25% installments. If your income varies significantly throughout the year, IRS Form 1040-ES can help you determine how much you may need to pay for each period.
How to Actually Pay
Common payment options include:
- IRS Direct Pay - Pay directly from a bank account
- EFTPS - A free government portal
- Mail a check - With Form 1040-ES
Don't forget the state! Most states have their own estimated payment requirements and deadlines.
Whichever method you choose to pay your estimated payments, keep a record of confirmation and payment dates. You'll want this info handy when you file your tax return the following year.
What Happens If You Don't Pay
If you skip estimated payments or pay too little, you may owe an underpayment penalty. The penalty is based on the amount and length of the underpayment, and the applicable rate can change.
Missed or insufficient estimated payments can be addressed, although an underpayment penalty may apply.
Practical Habits to Stay Ahead
A few habits to make the whole process less stressful:
- Set aside a percentage of every payment you receive
- Revisit your estimate each quarter
- Know when to bring a professional
The Bottom Line
Estimated taxes aren't a one-time task or a surprise bill; they're ongoing and should be part of your workflow. Once you build the habit of setting money aside and paying quarterly, it stops being something you dread and just becomes part of running your business.
