filing quarterly taxes on 5k of self-employment income

[Jenniferswick]

Hello 🙂

If I understand correctly, the IRS expects you to file quarterly taxes if you will owe 1k or more in federal taxes.

1. Is that if you owe 1k or more in self-employment taxes only, or total taxes (only 5k of my income will be self-employment, but I expect to earn another 5k from an employer).

2. If paying quarterly taxes only concerns self-employment income, than am I thinking correctly that 15.3% of 5k is $765, therefore I would not need to pay quarterly taxes?

Thank you!

[ClarissaA]

Hi Jennifer!

The IRS expects quarterly tax payments if you are going to have an outstanding tax liability of over $1000 at the end of the year after all other payments are considered.  They are looking at your total tax liability (so the combined income taxes and self employment taxes.)  

You are correct that the 15.3% of self employment taxes on your $5K of income would be $765.  

To determine if you need to make estimated payments you need to add that self employment tax to any income tax you would owe on your return as well.  Based on what you've provided, with $5K of self employment income and $5K of wage income, you are not likely to have an actual income tax liability (this assumes $10K in total income, less the standard deduction for single of $13,850, resulting in taxable income of $0.  The income tax on $0 is going to be $0.)    All of which means you are likely NOT required to make the estimated tax payments, but you will need to be prepared to make a payment of your entire tax liability for self-employment taxes by next April.   Not being required to make the payment doesn't prevent you from making one if you want to lower your expected balance due while you've got funds coming in from the work - but based on the facts you've provided, in your situation, it's optional. 

[jscottjr_CPA]

Hello,

I'm happy to help you with your questions today. 

1) The rule for estimated taxes is for total taxes, not just self-employment.  If you are an individual (1040 filer), partner or S corporation shareholder, and  you expect to owe tax of $1000 or more when the return is filed, you should be making estimated payments.

2) If your only tax that you expect to owe is $765 (for example if the taxes on your wage income is accurately withheld) then you would not be expected to make estimated tax payments and can pay the amount due with your return filing.  Generally, most taxpayers will avoid any underpayment penalty if they owe less than $1000 after subtracting withholding and credits.  However, you should consider whether you owe income tax on your self employment income as well as the self-employment tax.  The combination of the income tax and self employment tax could push your over the $1000 threshold, depending on what other income you have on your return (retirement or investment income, spouse's income)

Have you considered having the extra tax from your self-employment income withheld from your paycheck?

You can find more information here about estimated taxes here: https://www.irs.gov/businesses/small-businesses-self-employed/estimated-taxes#:~:text=Individuals%2C....

Here is a link with more information about tax penalties: https://www.irs.gov/taxtopics/tc306