It’s no secret that the freelance and gig economy is growing, which means more self-employed people who must pay taxes. This fact hasn’t gone unnoticed by the Internal Revenue Service (IRS) which, of course, has a special interest in ensuring that self-employed individuals pay all the taxes they are obligated to in a timely fashion.
Just in advance of the next estimated tax deadline, which is September 16, the IRS has released a new Tax Withholding Estimator tool. What’s important about this tool for freelancers? According to the IRS, it is designed to make it even easier for those who receive self-employment income to accurately estimate the right amount of tax they owe—even if they are also employed by a third-party.
Some of the features of the new IRS Tax Withholding Estimator tool applicable to self-employed individuals include:
- The ability for users to enter any self-employment income, including income from side gigs or the sharing economy, in addition to wages or pensions.
- Alerts that indicate whether you may qualify for several special tax benefits, including the self-employment health insurance deduction or the deduction for contributions to a Simplified Employee Pension (SEP), Savings Incentive Match Plans for Employees (SIMPLE) or other qualified retirement plan.
- Automatic calculation of the self-employment tax and the self-employment tax deduction. The tool will include these in your overall tax liability estimate.
It is important to remember that in addition to estimated taxes, you should also take into consideration any state and local income taxes that you may owe.
Given that we’re almost in the fourth quarter of the year, it’s worth checking out the new tool to make sure that your estimated tax payments and any withholding that you need to do are accurate. Doing so will help you avoid any surprises come tax season.