Social Security and Estimated Quarterly Taxes

[KenC2917]

I just started working as a 1099 contractor. I got my first payment at the end of May. Each month, the money I earn will vary, but it will increase quarter over quarter. I can't find how to calculate and send in my Social Security taxes and my quarterly estimated taxes as I didn't have to do this last year, and I can't purchase 2025 tax software yet.

[Opus 17]

Turbotax is not really set up to do that in any case.  That is more a feature of business accounting software like Quickbooks.  Depending on your other income, expected deductions, and dependents, a good rule of thumb would be 25-30% of your net profit (gross income minus expenses). 

[baldietax]

If you have desktop TT 2024 you could use that to run a hypothetical tax return for your 2025 situation but it won't reflect the changes in the big bill and you may need to adjust for different tax brackets or changes in deductions.  maybe some online calculators will be available before TT 2025.

To avoid penalty you need to have paid thru withholding or timely estimated taxes during the year, the smaller of 100% of your 2024 tax (110% if AGI > 150k or 75k if Married Filing Single), or 90% of your 2025 tax - this is your "safe harbor" amount.  (See lines 1-9 on Form 2210 where this is calculated).

So if this 1099 work is significantly increasing your income from 2024 to 2025 you may be able to pay estimated tax based on 2024 tax.  Then it doesn't matter how much or timing of your 2025 income.  The only snag is now that it's Q3 you would need to catch that up for Q1-2 and there will be some penalty on those quarterly payments until you pay that but it will only be a few months, and that may be offset by deferring payment of higher 2025 tax until April 2026.

If 2024 option doesn't work then once you figure out some sort of estimate for 2025 tax, you can either pay that quarterly and similarly have some penalty due to late payment of Q1/2 ES; or, pay it in Q3/4 in line with your 1099 earnings and use the "Annualized Income Method" on Form 2210 next year to show how the uneven income and uneven estimated tax lines up, but this will involve some extra calculations on your part to determine your AGI/withholding/Qualified Divs/LT Cap Gains as of 3/31, 5/31, 8/31 (12/31 being your full year return).  In TT this is info is input under Other Tax Situations / Underpayment Penalty section but TT won't calculate those quarterly figures other than the full year.  And you have to follow similar for state.

I'm not sure the effect on your social security and how that plays into the AI method if that is regarded as evenly earned thru the year while your 1099 is uneven - but maybe the big bill helps you here; the AI method should certainly reduce your penalty if your income and estimated tax payments are backloaded later in the year, but may not eliminate it.

Not a CPA, hope that helps think about options - for more info see:

https://www.irs.gov/faqs/estimated-tax

https://www.irs.gov/pub/irs-pdf/i2210.pdf

https://turbotax.intuit.com/tax-tips/general/taxes-2021-7-upcoming-tax-law-changes/L3xFucBvV

[SteamTrain]

ANND...in case it wasn't clear.

The SS/Medicare taxes you expect to pay, those are just added into the quarterly estimates that you pay.  You don't pay them separately.   Then, when you file your yearly taxes, those the total of the quarterly estimates you've paid in will be used as a credit against the total of your SS/Medicare taxes due, plus any regular income taxes that you are assessed.

[VolvoGirl]

@KenC2917   You will be entering your 1099 Contractor income and expenses on Schedule C in your personal tax return.   You will pay Self Employment tax (Scheduled SE) on a Net Profit of $400 or more on Schedule C in addition to regular income tax on it.   You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400).  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

Turbo Tax guide to Estimated taxes

A Guide to Paying Quarterly Taxes - TurboTax Tax Tips & Videos

You must make quarterly estimated tax payments for the current tax year if both of the following apply:

- 1. You expect to owe at least $1,000 in tax for the current tax year, after subtracting your withholding and credits.

- 2. You expect your withholding and credits to be less than the smaller of:

    90% of the tax to be shown on your current year’s tax return, or

  100% of the tax shown on your prior year’s tax return. (Your prior year tax return must cover all 12 months).