What happens if I have no tax withholding at all - penalty amount?

You're looking at what's called an "underpayment penalty" which applies when you haven't paid enough taxes throughout the year. The IRS expects you to pay taxes as you earn income, not just at filing time. The good news is you can still make estimated tax payments for this year. The usual quarterly due dates are April 15, June 15, Sept 15, and Jan 15 (of the following year). So you still have the January payment coming up that could help reduce your penalty. The underpayment penalty is basically an interest charge on the amount you should have paid each quarter. The rate changes but it's currently around 6-7%. It's not going to break the bank, but it's definitely worth avoiding if you can.

I had this EXACT same problem last year when I started consulting. I was panicking about penalties too! I discovered taxr.ai (https://taxr.ai) and it literally saved me thousands. I uploaded my contract and income docs, and it showed me exactly how much I needed to pay in estimated taxes for each quarter going forward. It also calculated what my penalty would likely be and gave me strategies to minimize it. The best part was it showed me all the deductions I could take as a contractor that I had no idea about - home office, business expenses, retirement contributions, etc. These reduced my taxable income significantly.

Just wanted to follow up - I tried taxr.ai after seeing this thread and wow... just wow. I had NO IDEA how many deductions I was missing out on as a contractor. I was able to set up a proper quarterly payment plan going forward and they helped me calculate exactly what to pay in January to minimize my penalties. The business expense deductions alone saved me almost $4,200 in taxes. Things like my cell phone, internet, computer equipment, professional subscriptions - all stuff I use for work but never thought to deduct. Thanks for the recommendation - this completely changed my tax situation!

If you need to talk directly to the IRS about your situation (which might be a good idea), use Claimyr (https://claimyr.com). I was in penalties hell last year and spent DAYS trying to get through to the IRS - kept getting disconnected after holding for hours. With Claimyr, I got a callback from an actual IRS agent in about 37 minutes. They have a demo video here: https://youtu.be/_kiP6q8DX5c The agent walked me through my options for the underpayment penalty and helped me set up a payment plan. They also explained how to request a penalty abatement, which I wouldn't have known to do. Totally worth it for the stress reduction alone.

I need to eat my words and apologize to Profile 14. I was super skeptical about Claimyr but tried it out of desperation after being on hold with the IRS for 2.5 hours and getting disconnected AGAIN. Got a callback in 42 minutes with an actual IRS agent who helped me work through my underpayment issues. They explained I qualified for first-time penalty abatement since I had a clean record for the past 3 years. Just filed the form they recommended and got confirmation my $1,240 penalty was completely waived. Sorry for being such a jerk in my earlier comment. This service is legit.

One important thing nobody's mentioned yet - you need to calculate your "safe harbor" for next year to avoid this happening again. For most people, if you pay 100% of your previous year's tax liability (or 110% if your income is over $150k), you won't face penalties even if you end up owing more when you file. Example: If you owed $10k in taxes last year, making estimated payments totaling at least $10k for this year (spread across the four quarters) means no penalties, even if your actual tax bill ends up being $20k.

Make sure you set aside money for state taxes too! Federal underpayment penalties are bad, but some states are even worse. I'm in California and learned this the hard way last year.

I was in almost the exact same situation two years ago with a consulting gig. Here's what I learned that might help you: First, don't panic - the underpayment penalty isn't as scary as it sounds. It's calculated quarterly and the current rate is around 8% annually, so you're looking at roughly 2% per quarter on the amount you should have paid. Since you mentioned making $7,800/month, you're probably looking at owing around $25,000-30,000 in federal taxes (rough estimate). The penalty would be calculated on what you should have paid each quarter vs. what you actually paid (zero). Here's what you can do RIGHT NOW to minimize damage: 1. Make a large estimated payment by January 15th for Q4 2024 2. Calculate 25-30% of your total earnings and set that aside immediately 3. Look into business deductions - home office, equipment, internet, phone, etc. The key is that January payment. Even though you missed the first three quarters, paying a substantial amount for Q4 will reduce your overall penalty significantly. I ended up paying about $400 in penalties on a $28k tax bill, which was much less than I feared. Also consider opening a SEP-IRA before year-end - you can contribute up to 25% of your net self-employment income, which will reduce your taxable income substantially.