Self-employment income threshold for tax liability: How much can I make before paying taxes?

Wait so if I make less than the standard deduction but more than $400 self-employed, I still have to pay the 15.3% on everything over $400? That seems so high! Does that mean I'd owe like $900 on my $6400?? Also do you know if there's a way to avoid the quarterly payments and just pay it all when filing?

You're right that you'd pay the 15.3% on your net earnings from self-employment, which in your case sounds like almost the full $6,400 since you had minimal expenses. So yes, that would be around $980 in self-employment tax. Regarding quarterly payments, you technically can pay it all when filing, but you might face an underpayment penalty if you owe more than $1,000 at tax time. The quarterly payments are designed to match how employees pay taxes throughout the year through withholding. If you're concerned about managing these payments, there are some safe harbor rules that might help - like if you pay at least 90% of your current year tax or 100% of your prior year tax through withholding or estimated payments.

Does it handle just self-employment stuff or could it help with my W2 job plus side gig situation? I've got both and always mess something up.

Seems suspicious tbh. How much does it cost? Most of these tax "helpers" end up charging as much as an actual accountant once you get to the end.

It definitely handles both W2 and self-employment income together. That's actually one of the things I liked about it - it looks at your full tax picture and considers how they affect each other. I was working part-time plus doing freelance last year and it managed everything. I totally get being suspicious of tax services. I was hesitant too after getting burned by "free" tax services before. They're upfront about their pricing though, and it was way less than what I paid an accountant the year before for the same situation. You can see what it'll offer before committing to anything.

How does this actually work though? Do they have some special connection to the IRS or something? Seems weird that a random service could get through when regular people can't.

Yeah right. Nothing gets you through to the IRS faster. They've designed their system specifically to make it nearly impossible to talk to anyone. This sounds like snake oil.

No special connection - they just use an automated system that keeps dialing the IRS and waits on hold so you don't have to. The IRS phone system is basically designed to make people give up because they can't stay on hold for 3+ hours. This service just handles the waiting part, then connects you when a real person answers. The IRS is actually aware these services exist and they're completely legitimate. They just work because they're persistent with the dialing and holding. Nothing magical about it, just saves you from the frustration of waiting on hold forever or getting disconnected after an hour.

Thanks for bringing that up! I'm in Texas so I think we don't have state income tax, but that's definitely something I should double check. Do you know if there are any city or local taxes I might need to worry about for self-employment? I've heard some places have those too.

Texas doesn't have state income tax, so you're fortunate there! However, some cities or counties might have local business taxes or registration requirements, even for small operations like yours. It's not common in most areas of Texas, but worth checking with your county clerk's office. For most casual side gigs under $10k, you're usually just dealing with the federal self-employment tax. The bigger concern would be if your self-employment grows and you start making more substantial income - then you might need to consider things like business licenses or permits depending on the type of work.

Pro tip: get an app that tracks mileage and expenses specifically for gig work. I use one that lets me take pics of receipts as I get them and categorizes everything. Saved me a ton when filing because I had everything organized. I'm not super detail oriented so this helps me not lose track.

This is super helpful, thank you for breaking it down so clearly! I had no idea about being able to deduct half of the self-employment tax - that's actually a decent chunk of money back. Quick question about the expenses you mentioned - for the cell phone portion, do I need to calculate exactly what percentage I used it for work calls, or is there a standard percentage the IRS accepts? I definitely used my phone to coordinate with clients but I'm not sure how to document that properly. Also, when you say "above-the-line" deduction, does that mean it reduces my overall taxable income even if I take the standard deduction? I'm still learning all this tax terminology!

Great questions! For the cell phone deduction, you need to calculate the actual business use percentage - there's no standard IRS percentage. The best approach is to track it for a month or two to establish a pattern. Look at your call logs and estimate what percentage of your minutes/data were work-related. Even if it's just 10-15%, that can still add up over a year. And yes, "above-the-line" deductions (officially called adjustments to income) reduce your adjusted gross income before you even get to the standard deduction. So you get to take both - the half of SE tax deduction AND the standard deduction. It's one of the few deductions that doesn't require itemizing. So in your case, you'd deduct about $490 (half your SE tax) from your $6,400 income, bringing your AGI down to around $5,910. Then you'd still get the full $13,850 standard deduction on top of that. It's a nice little bonus that helps offset some of the sting of SE tax!

This is really helpful context about the employer/employee split - that makes so much more sense now! I was wondering why the percentage seemed so high compared to what gets taken out of regular paychecks. Quick follow-up question: when you mention quarterly payments, do you pay based on what you made the previous quarter, or do you estimate what you think you'll make for the whole year and divide by 4? I'm worried about either overpaying or underpaying since my handyman work is pretty seasonal - way busier in spring/summer than winter. Also, did you find any good apps or tools for tracking those small expenses? I'm definitely not naturally organized with receipts and paperwork, so something that makes it easier would be a game changer for me.

Great questions! For quarterly payments, you estimate your total income for the year and divide by 4. So if you think you'll make around $6,000 again, you'd pay roughly $230 per quarter ($920 SE tax ÷ 4). The key is making a reasonable estimate - you can always adjust if your income changes significantly. Since your work is seasonal, you might consider making larger payments in Q2 and Q3 (April and July) when you're busier, and smaller ones in Q1 and Q4. As long as your total payments for the year cover at least 90% of what you owe, you'll avoid penalties. For expense tracking, I love QuickBooks Self-Employed - it automatically categorizes transactions and lets you snap photos of receipts. Connects to your bank account so you don't miss anything. There's also a free app called Everlance that's great for mileage tracking if you start driving to job sites. Both have saved me hours during tax season! The seasonal nature actually works in your favor for record-keeping since you can focus on getting organized during your slower winter months. Set up whatever system works for you now, and you'll be golden for next year's taxes.

This breakdown is really helpful! I'm just starting to wrap my head around all this tax stuff as someone who's never had to deal with self-employment before. The Social Security/Medicare explanation makes it click - I hadn't realized that's what the 15.3% was covering. One thing I'm still confused about though - when you mention tracking "everything," how detailed do I need to get? Like if I buy a $3 pack of work gloves, is that really worth keeping the receipt for? And what about things I use for both personal and work stuff - like if I buy a multi-tool that I use for my handyman jobs but also around my own house? Also, dumb question maybe, but when you say "above-the-line deduction" - does that mean it's better than regular deductions somehow? I'm still trying to figure out why there are different types of deductions and which ones are more valuable. Thanks for sharing your experience - it's reassuring to hear from someone who figured this all out!

@408632c00c2b Absolutely keep that $3 receipt! Small expenses add up fast - I probably saved $200+ last year from tracking $2-10 purchases. I take a quick phone photo of every receipt right when I get it, then sort them monthly. For mixed-use items like your multi-tool example, you can deduct the business percentage. If you use it 70% for work and 30% personal, deduct 70% of the cost. Keep a simple log for a few weeks to establish the pattern - the IRS likes reasonable documentation. "Above-the-line" deductions are indeed better! They reduce your adjusted gross income BEFORE you choose between standard/itemized deductions. So you get the SE tax deduction ($490) AND still take the full $13,850 standard deduction. Regular itemized deductions are either/or with the standard deduction. Think of it this way: above-the-line deductions are like a discount on your total income, while itemized deductions only help if they exceed the standard deduction amount. That's why the SE tax deduction is so valuable - it stacks with your standard deduction!

Thanks Andre! This is exactly the kind of clear breakdown I needed. I was definitely getting confused between the two tax systems - it makes so much more sense now that you explained the Social Security/Medicare angle. I'm feeling a lot better about tackling this now. The $980 SE tax is definitely a chunk of money I wasn't expecting, but at least I understand where it's coming from. And that $490 deduction for half the SE tax is a nice surprise - every little bit helps! You're right about not leaving money on the table with expenses. I'm definitely going to go back through my records and see what I can find. I know I bought some cleaning supplies for my tools and probably used my phone more than I realized for coordinating jobs. Even if it only saves me $50-100, that's worth the effort. Setting up those quarterly payments for next year makes sense too. Better to stay on top of it than get hit with penalties. Thanks for sharing your experience - it's really helpful to hear from someone who's been through the same thing!

This is such great practical advice, especially about setting aside 20-25% of each payment! I wish I had thought of that earlier - would have saved me so much stress when tax time rolled around. The separate savings account idea is brilliant. I can see how treating all the income as "spendable" would lead to a nasty surprise later. Definitely going to set that up before I take on any more jobs this year. Thanks for mentioning the EFTPS system too - I was wondering how the quarterly payment process actually worked. Being able to do it online and get confirmation sounds way better than dealing with checks and mail. One quick question - when you say 20-25%, is that just to cover the self-employment tax, or does that also account for potential state/local taxes and maybe a little buffer? I want to make sure I'm setting aside enough but not being overly conservative and tying up money I could use.