When Paying Rideshare Estimated Taxes, Don’t Forget State Taxes!
Just to remind you, the last payment for 2014 Estimated taxes is in two days, 1-15-2015!
So throughout the year, I was diligent to calculate my federal estimated taxes as there are some penalties when you don’t pay your federal estimated taxes. There is a small reprieve for new drivers.
Generally, most taxpayers will avoid this penalty if they owe less than $1,000 in tax after subtracting their withholdings and credits, or if they paid at least 90% of the tax for the current year, or 100% of the tax shown on the return for the prior year, whichever is smaller.
http://www.irs.gov/Businesses/Small-Businesses-&-Self-Employed/Estimated-Taxes
The last part is really important. If you have a higher tax bill this year as last year, you don’t necessarily be required to pay estimated taxes this year. For example, you made $50k in your full time job in 2013 and 2014. You started driving in Jan 2014, and now you owe some taxes as you made $10k in 2014. If you keep all of your withholdings for taxes in your full time job the same for 2013 and 2014, you wouldn’t need to pay estimated taxes in 2014 for your additional rideshare income.
Despite this, I still paid my estimated taxes anyway so that I can get used to it as I wouldn’t qualify for it in 2015. I expect to be driving about as much this year as last year so I would now need to pay estimated taxes in 2015, instead of not being penalized for it.
There was a discussion about taxes in my local city Facebook group and I responded with information from this post I made about rideshare taxes and also estimated taxes:
When I replied, I added in the state tax. However, in all my calculations, I never calculated state taxes as I didn’t think I needed to pay estimated taxes at a state level. A quick Google search gave me the answer I was dreading: I do need to pay estimated state taxes.
I only checked a few states, but if you owe more than a few hundred ($400 in MA, $500 in CA) in state taxes that is not covered by withholding from your other jobs, then you will need to pay estimated taxes at a state level. State taxes vary between 0 in Texas and Florida to as high as 8% if you earn over 80K in California. So if you earn a few thousand dollars last year, you may need to pay estimated state taxes.
Remember, there are also taxes at a city level so make sure to watch out for that as well.
Luckily, most states have the same stipulation as the federal taxes in that if your tax burden is higher in 2014 than 2013, you wouldn’t need to pay estimated taxes if you paid the same amount of taxes this year as last year. So for me, I wouldn’t be penalized for not paying my estimated state tax, but I would be in 2015 if I earned the same amount of money in 2015 as 2014 and didn’t pay my estimated state taxes.
So here is the summary:
- Calculate your estimated taxes on a federal level: its your nominal tax bracket (mines is 28%) + self employment tax (made up of Social Security and Medicare, 15.3%, half of which is tax deductible) – deductions (Mileage or expenses)
- Calculate your estimated taxes on a state level: its your state income tax. In California, it is a graduated income tax so find out which tax bracket you fall into
- Check to see if you owe any city level taxes. I just happen to pull up Akron, Ohio tax page and it says 2.25% for Akron residents, which is in addition to the Ohio State Income Tax.
If you are generally concerned about all of this information and do not know what to do, go seek professional help. It is a small price to pay for a professional to take a look and also maximize your deductions, which can be in the hundreds, if not thousands of dollars.
Have you taken a look at what you owe for taxes? Are you concerned about how much you need to pay out in a few months when it is due?
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