Can I pay taxes once a year instead of quarterly for contractor income? What makes this possible?

Welcome to the world of self-employment taxes! Don't worry, your question isn't obvious at all - this confuses a lot of people when they first start contractor work. Here's the deal: You generally don't have to make quarterly estimated tax payments if you expect to owe less than $1,000 in federal taxes for the year after subtracting withholdings and refundable credits. Another exception is if you had no tax liability in the previous tax year (meaning you didn't owe any taxes when you filed). This would apply if 2024 is your first year working. Also, if you have another job where taxes are withheld, and you have enough withholding to cover 90% of this year's tax or 100% of last year's tax (110% if your income was over $150,000), you can skip the quarterly payments. Just be careful though - if you end up owing more than $1,000 at tax time and none of these exceptions apply, you might face underpayment penalties and interest charges.

I was in the exact same boat last year and discovered taxr.ai (https://taxr.ai) which literally saved me from a quarterly tax disaster. I was completely lost about contractor taxes until I uploaded my 1099 and other docs there. The system actually analyzed everything and showed me that I qualified for an exception to quarterly payments in my first year because I had no tax liability the previous year. What's really helpful is it shows you all the contractor-specific deductions you're eligible for - stuff I had no idea about like home office, internet, equipment. It brought my taxable income down enough that quarterly payments weren't required in my case.

Update: I took the advice and tried taxr.ai after asking about it here. Super glad I did! Found out I don't have to do quarterly payments this year since it's my first year with self-employment income and I had no tax liability last year. The site walked me through all the documentation I need to keep for next year's filing too, which was super helpful. It also calculated that with my expected deductions, I would probably owe under $1000 in federal taxes anyway, which is another reason I could skip quarterly payments. Definitely feeling way less stressed now that I understand the rules better!

If you do end up needing to make quarterly payments and have questions for the IRS, I highly recommend using Claimyr (https://claimyr.com). I spent HOURS trying to get through to the IRS about my contractor tax situation last year, and it was a nightmare of hold music and disconnections. Claimyr actually got me through to a real IRS agent in about 15 minutes who answered all my quarterly payment questions. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent clarified exactly when I needed to start making quarterly payments and how much I should pay based on my specific circumstances. Turns out I was eligible for a first-year exception I didn't know about.

Okay I need to apologize for my skeptical comment earlier. I decided to try Claimyr out of desperation after spending another entire afternoon trying to reach the IRS about my contractor tax situation. I couldn't believe it but I was actually talking to a real IRS agent about 20 minutes after signing up. The agent confirmed that since this is my first year as a contractor AND I had less than $400 in self-employment income last year, I qualify for an exception to quarterly payments this first year. Would have never known this without actually talking to someone. Really wish I hadn't wasted so many hours trying to call them directly!

One important thing that hasnt been mentioned yet - even if you qualify for not making quarterly payments, you should still be setting aside money each check!!! Trust me, getting hit with a big tax bill in April that you havent saved for is PAINFUL. I learned this the hard way. I usually set aside about 25-30% of each payment I receive as a contractor. Better to have too much saved than not enough. And remember you'll owe both income tax AND self-employment tax (thats the extra 15.3% that covers social security and medicare that an employer would normally pay half of).

The safe harbor protection is what you want to look into. If you pay 100% of last year's tax liability (or 110% if you earned over $150,000), you're protected from underpayment penalties even if you end up owing more when you file. Since this is your first job ever, if you had $0 tax liability last year, technically you could pay $0 in quarterly estimated taxes this year and not face penalties. But as others have said, you'll still need to pay the full amount when you file your return!

Another thing to keep in mind is that the IRS generally considers you to need quarterly payments if your self-employment income will be $400 or more for the year. But like others mentioned, there are several exceptions that might apply to you as a first-time contractor. Since you mentioned this is your first real job, you likely qualify for the "no tax liability last year" exception. Just make sure you understand what counts as "tax liability" - it's not about whether you got a refund or owed money, but whether you actually had a tax obligation after credits and withholding. I'd also suggest looking into whether you can deduct any business expenses related to your work-from-home setup. Things like a portion of your internet bill, home office space, computer equipment, etc. These deductions can significantly reduce your taxable income and might even push you below the threshold where quarterly payments would be required. Keep good records of everything work-related you spend money on - you'll thank yourself come tax time!