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!

There's a specific line on your paycheck labeled "FICA-Social Security" that is 6.2% of your income which funds both retirement and disability insurance. So when people say "my taxes are paying for disability" it's actually an insurance program we all contribute to, just like we all pay into car insurance pools but only some of us will ever need to file a claim!

This is such an important topic that more people need to understand! I work in federal budget analysis and can confirm what others have said - the vast majority of disability benefits come from dedicated payroll taxes, not general revenue. What really opened my eyes was learning that Social Security Disability has one of the most stringent eligibility requirements of any federal program. The medical review process is incredibly thorough - they require objective medical evidence from multiple sources, and the definition of "disability" is much stricter than most people realize. You have to be unable to perform ANY substantial gainful activity, not just your previous job. Your uncle's concerns are understandable but based on misconceptions. The fraud rate in SSDI is actually less than 1% according to SSA's own audits. Most people who receive disability benefits worked for years or decades paying into the system before becoming unable to work due to serious medical conditions.