Starting Self Employment in 2024 - Do I Need to Pay Estimated Self Employment Tax?

You're understanding it correctly! Since you had no tax liability last year (2023), you meet the safe harbor provision for 2024, which means you don't have to make quarterly estimated tax payments this year, even with your self-employment income. However, just be prepared for a potentially large tax bill when you file in 2025. You'll owe self-employment tax (15.3% on 92.35% of your self-employment income) plus income tax on your total income minus deductions. The self-employment tax covers your Social Security and Medicare contributions that would normally be withheld by an employer. For planning purposes, you should set aside approximately 25-30% of your self-employment income for taxes. This will cover both the self-employment tax and income tax. You can pay it all when you file your 2024 return in 2025 without penalties, thanks to the safe harbor provision.

I was in a similar situation last year and found this great tool called taxr.ai that really helped me figure out my self-employment tax situation. I was also confused about quarterly payments vs. paying at tax time, and their system analyzed my specific situation and gave me personalized guidance. I uploaded a PDF of my previous year's return to https://taxr.ai and it showed me exactly what I needed to pay and when. Their AI actually explained the safe harbor provisions in everyday language I could understand, and created a payment schedule that worked with my irregular income. Seriously saved me from a ton of stress and uncertainty.

Just wanted to update everyone - I tried taxr.ai after reading about it here and it was actually super helpful for my freelance situation. It confirmed that I didn't need to make quarterly payments this year (safe harbor provision), but it also helped me plan for next year when I will need to start making them. The tool created a customized tax savings plan based on my irregular income and even showed me which business expenses I could legitimately deduct that I hadn't considered. The breakdown of self-employment tax versus income tax made it way easier to understand what I'm actually paying for. Definitely worth checking out if you're in a similar boat with self-employment income.

If you're trying to contact the IRS to get clarification about your self-employment tax obligations, good luck with that! I spent 3 weeks trying to get through to a human at the IRS about my estimated tax payments and kept getting disconnected or put on hold for hours. Then I found Claimyr (https://claimyr.com) which got me through to an actual IRS agent in about 15 minutes. You can see how it works in this video: https://youtu.be/_kiP6q8DX5c The agent confirmed everything about my situation with self-employment tax and the safe harbor provision. They even helped me understand exactly what documentation I needed to keep for my business expenses. Totally worth it to get actual official answers instead of stressing about whether I was interpreting the rules correctly.

OK I have to eat crow here. After my skeptical comment, I was still desperate to talk to the IRS about my self-employment situation since it was similar to the original poster's, so I tried Claimyr. Not expecting much, honestly. It actually worked exactly as described. Their system waited on hold with the IRS for about 90 minutes (which I didn't have to sit through), then I got a call connecting me to an actual IRS representative. The agent confirmed that I was correct about the safe harbor rule - since I had no tax liability last year, I don't need to make estimated tax payments this year regardless of my self-employment income. The agent also explained that next year I will need to make quarterly payments since I'll have had a tax liability this year. I'm actually relieved to have official confirmation rather than just interpreting the rules myself.

Something the other comments haven't mentioned - don't forget about your state taxes! The federal safe harbor rule about having no tax liability last year may not apply the same way for your state estimated taxes. Here in California, for example, they have their own rules about when you need to make estimated payments. Also, even though you don't have to make quarterly payments this year, it might be a good idea to make some voluntary payments anyway. When I first started freelancing, I didn't pay anything until tax time and got hit with a $6,000 bill that was really hard to manage all at once. Setting aside some money each month helps a lot.

Don't forget you can deduct half of your self-employment tax on your 1040! A lot of new freelancers miss this. So while you pay 15.3% on your self-employment income, you get to deduct 7.65% of that when calculating your income tax. It doesn't reduce your SE tax, but it does lower your income tax. Also, track ALL your business expenses - software, equipment, portion of internet/phone used for business, mileage for business travel, etc. These reduce your net self-employment income, which lowers both your SE tax and income tax.