Wait... I Have to Pay Estimated Taxes Now?!

Several weeks ago, I was chatting with a fellow mom during a playdate. She casually went,“So my husband is doing our taxes. You know I’ve been a contract employee with this current employer, and they don’t withhold taxes. I guess I can just pay everything when we file, right?”

My brain immediately screamed,Noooo…!!! 😬

But I gently told her: “You may need to start paying estimated taxes for next year. Our tax system is "pay as you go". It was already March—too late for the 2024 tax year—but a great time to learn the basics of estimated taxes and get ready for Q1 of 2025, which is due April 15, 2025.

Here’s the Deal:

If you're self-employed, freelancing, working as a contractor, or even receiving passive income (the best kind, right?), you’re responsible for paying taxes throughout the year—because no one else is withholding taxes on your behalf.

W-2 wage earners, don’t tune out just yet!The IRS expects everyone to “pay as you go” via quarterly estimated payments. Waiting until April to pay everything? That can lead to underpayment penalties, even if you pay your full balance at tax time.

So, how do you know if you’ll be penalized?

Let’s talk about the IRS Safe Harbor Rule—the IRS’s way of saying:

“If you pay us enough during the year, we won’t penalize you—even if you end up owing more at tax time.”

To avoid penalties, you must pay at least:

• 90% of the current year’s tax, OR

• 100% of last year’s tax (or 110% if your AGI was over $150,000)

✅ If you hit one of those safe harbors, the IRS gives you a break. This is a great planning tool I use with clients—especially those with fluctuating income or surprise windfalls.

What if you’re a W-2 employee?

If you don’t have variable compensation, you're probably set. Your employer withholds taxes from every paycheck—federal, state, Social Security, Medicare—the whole nine yards. You might need to adjust for bonuses, investment income, or other changes, but for the most part, your taxes are on autopilot.

BUT... if you luckily receive equity compensation—especially RSUs—your tax obligation can get tricky!

• When RSUs vest, its fair market value on the vesting date is included in your next paycheck as ordinary income

• Most companies only withhold a flat 22% for federal taxes from your RSU value—not nearly enough for high-income earners

• If your company stock is having a great run or is especially volatile (hello, recent IPOs and growth stocks), your tax liability can change througout the year and you need to carefully calculate your taxable income to avoid an underpayment or overpayment of quarterly estimated taxes

You Don’t Have to Figure This Out Alone

If you’ve transitioned into freelance, consulting, or contract work—or you’re earning extra income on or outside your W-2 jobs—it’s time to start thinking like a business owner from a tax perspective:

✔ Proactively plan for taxes

✔ Keep your books in order

✔ And most importantly, get help when you need it (hello 👋)

Not sure what your “safe harbor” number is? Wondering what you should pay and when?

Let’s chat. The sooner you start building a tax plan, the more confident you will feel next April.