As someone who went through this exact same panic last year, I can tell you that you're overthinking this! The fact that you're being proactive about understanding your tax obligations shows you're already being financially responsible. Here's the reality: with savings account interest, you're not required to have withholding. Most people don't. The 24% rate your bank mentioned is backup withholding, which is way higher than what most college students would actually owe. Since you're a student, you're likely in the 10% or 12% tax bracket. So on that interest income, you'd owe maybe 10-12% in taxes, not 24%. If you activate withholding at 24%, you're essentially giving the government an interest-free loan of your own money until you get your refund. My advice? Don't activate the withholding. Instead, just set aside about 10-15% of your interest earnings in a separate account so you have the money ready when you file your taxes. This way you keep control of your money and might even earn a little more interest on it while you wait to pay the IRS. You're doing great by saving and being conscious about taxes - don't let this stress you out!

I went through this exact same worry when I first started earning interest on my savings! The key thing to remember is that interest income is just added to your other income when calculating your taxes. Since you're a college student, you're probably in a low tax bracket (likely 10% or 12%), so the tax on your interest will be much less than that 24% withholding rate. For example, if you earned $500 in interest and you're in the 12% bracket, you'd only owe about $60 in taxes on that interest - not the $120 they'd withhold at 24%. My recommendation? Skip the withholding and just make sure you have enough saved to cover the actual tax when you file. You can estimate this by multiplying your interest earnings by your tax bracket percentage. This way you keep control of your money instead of giving the government an interest-free loan. Also, don't forget to look into education tax credits like the American Opportunity Credit - as a student, these often completely offset any tax on modest interest income and can even get you a refund!

3 Another thing to consider - your son should definitely start making quarterly estimated tax payments for his self-employment income. The deadline for Q1 2025 payments is April 15th. This spreads out the tax burden throughout the year AND helps avoid underpayment penalties that the IRS can charge! For a rough estimate, he should set aside about 30% of his self-employment profit for taxes (15.3% for self-employment tax plus income tax). The IRS Form 1040-ES has worksheets to calculate this more precisely.

4 Your son might also qualify for the Qualified Business Income (QBI) deduction, which could reduce his taxable income by up to 20% of his net business profit. This only applies to income tax though, not self-employment tax. Make sure your tax software is calculating this - it can make a significant difference!

I understand the temptation to not report that income, but I'd strongly advise against it. The IRS has been cracking down on unreported income, and with digital payment platforms like Venmo becoming more transparent, the risk isn't worth it. However, you're actually in a pretty good position to minimize your tax burden legally! Since you're renting rooms in your primary residence, you can deduct a proportional amount of many expenses. If your roommates occupy, say, 30% of your home's square footage, you could potentially deduct 30% of your mortgage interest, property taxes, utilities, insurance, and even depreciation. With $27k in rental income and your mortgage interest alone, plus other allowable deductions, you might be surprised how much you can reduce that taxable rental income. I'd recommend talking to a tax professional who can help you calculate the exact percentage and identify all legitimate deductions. You might end up paying way less than that 25% you're worried about, and you'll sleep better at night knowing everything is above board. The peace of mind of doing it right is worth way more than the risk of penalties and interest down the road.

I know it's scary to think about reporting that income, but everyone here giving advice to report it is absolutely right. The IRS is getting much better at tracking digital payments, and Venmo has already started reporting business transactions. Even personal payments can be flagged if there's a pattern. The silver lining is that with proper deductions, your tax hit might be much smaller than you think. I rent out rooms too, and last year I was able to deduct about 35% of my mortgage interest, property taxes, utilities, insurance, and even got depreciation on the rental portion of my house. Don't forget you can also deduct things like repairs that benefit the rental areas, cleaning supplies, even a portion of your homeowners insurance. I ended up paying taxes on less than half of my actual rental income after all the legitimate deductions. Start keeping detailed records now - take photos of the rented rooms, measure the square footage, and save every receipt for house-related expenses. You'll thank yourself come tax time. The peace of mind of doing it right is worth way more than the anxiety of wondering if you'll get caught.

If you want exact info on quarterly payment requirements, IRS Publication 505 has all the details. I got hit with an underpayment penalty a few years ago because I didn't realize a large year-end bonus would push me over the threshold. Remember there are "safe harbor" provisions - you can avoid penalties by paying either 90% of current year tax OR 100% of last year's tax (110% if your AGI was over $150,000). The second option is often easier if your income fluctuates a lot.

Great question about quarterly payments! As others mentioned, the $1,000 threshold applies regardless of whether you're W-2 or self-employed. But here's something that might help with your confusion about effective tax rates: The difference you're seeing isn't just about retirement accounts (though those help). Higher earners often benefit from the progressive tax structure in unexpected ways. For example, someone making $325k might have significant portions of their income taxed at lower brackets, plus they hit the Social Security wage cap so they stop paying that 6.2% tax on earnings above $168,600. Also, many higher earners can take advantage of strategies like: - Maxing out HSA contributions ($4,300 individual/$8,550 family for 2024) - Backdoor Roth conversions - Tax-loss harvesting on investments - Business expense deductions if they have side income For your quarterly payment question specifically - if you're W-2 only and your employer withholds properly, you likely don't need to worry about quarterlies unless you have significant other income sources. The IRS Form 1040ES has a worksheet to help calculate if you need to make estimated payments.

What tax software are people using for situations like this? I'm using TurboTax and can't figure out how to explain the 1099-NEC discrepancy anywhere.

I went through something very similar last year! My 1099-NEC had the wrong amount in Box 1 ($3,200 instead of $4,850) and also had Box 7 marked incorrectly. Here's what I learned: 1. Definitely try to get a corrected form first - send a written request to the company with your actual payment records attached. Give them about 2-3 weeks to respond. 2. If they don't issue a correction before you need to file, go ahead and report your actual income ($7,340) on Schedule C. The IRS wants you to report all income you actually received, regardless of what the 1099 says. 3. Keep detailed records of EVERYTHING - your invoices, contracts, payment confirmations, bank deposits, and your request for correction. Also document any communication with the company about the error. 4. Consider attaching a brief statement to your return explaining the discrepancy. Something like "1099-NEC received shows $5,875 in Box 1, but actual payments received were $7,340 as documented in attached records." The Box 2 marking is definitely wrong for graphic design work - that's only for direct sales of consumer products. Don't worry too much about it affecting your filing, just make sure your Schedule C clearly shows your business as graphic design services. You're being responsible by catching this early. Most people don't even notice these errors!