Quarterly estimated payments and self-employment taxes

[lzbwilcox]

My husband transitioned to being an independent contractor rather than a W-4 employee this year and we know we need to pay estimated quarterly taxes. Our understanding is that we can avoid an underpayment penalty if we pay at least 100% of our total tax liability in 2024 (divided evenly across the four quarters). 

What we are unclear on is if "100% of our total tax liability" is only the total we paid in income tax OR it includes the FICA taxes (Social Security and Medicare) in addition to our income tax. If it does include the FICA tax, is it only what we paid, or the combination of what we paid and what our employers contributed?

We know that we will have to pay the rest of the self-employment tax and income tax at the end of the year when we file our return. We want to know the minimum amount we can pay quarterly while still avoiding penalties.  Due to our employment situations, it is very uncertain how much we will make in the next three quarters, which is why we would like to base our quarterly payments on last year's tax.

Thanks in advance for your assistance. 

[MinhT1 · Accepted solution]

You will not have an underpayment penalty if you pay at least 100% of your tax liability shown in the previous year's return (110% or AGIs greater than $75,000 for single and separate filers and $150,000 for married filing joint). You do not need to add FICA taxes to this amount.

The tax liability is shown on line 24 of your form 1040.

Please read this TurboTax article for more information.

[fanfare]

your first period estimated tax plus withholding must be at least 25% of the Required Annual Payment or you will have a penalty on the first payment being too low.