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My question is about when does a self-employed tax payer have to make quarterly tax payments.

I understand that there is a safe harbor rule that says if you owed less than $1000 in taxes then you do not have to make quarterly payments in the current year even if your income is going to be much higher. Does the $1000 in this rule refer to income tax (only) or does it include Social Security / Medicare tax that you must pay. I believe to take advantage of this safe harbor rule, your total tax (income tax + your self employment tax) must be under $1000. Am I right about that?

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  • When you say "owed less than $1000", are you talking about last year's tax liability? If so, no, that does not mean that you don't have to pay estimated taxes for the current year. The $1000 rule is if your current year's tax liability minus current year withholding is less than $1000. Last year's tax liability only matters in that if your withholding reaches 100% (110% for high earners) of last year's tax liability, you don't have to make estimated payments. So if your last year tax liability was $999, you still need to have $999 of current year withholding to reach this safe harbor.
    – user102008
    Commented Jan 29, 2022 at 17:23

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If in the year X your tax liability is less than $1000 then estimated tax payments for the year X (i.e.: during that year) are not required and you won't have an underpayment penalty. That means that the "total tax" (line 24) on your 1040 should be less than $1000, including all the types of tax included in your 1040 (Ordinary income, capital gains, SE, Medicare, NIIT, AMT, what's not). If your tax liability is more than that then the safe harbor rule is a bit more complex, and depends on your income. If you owe less than $1000 of your liability you should still be good to go. See Topic 306.

So yes, if that's what you meant then you're right about this.

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  • If you look at the link you provided in your post, it says that you subtract out the credits you have. Therefore, I am thinking line 24 can be over a $1000 and the safe harbor provision still applies.
    – Bob
    Commented Jan 29, 2022 at 1:25
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    Yes, I said "if you withhold", but credits are essentially treated the same for this purpose.
    – littleadv
    Commented Jan 29, 2022 at 1:56
  • Sanity check: If you're within the safe harbor range, does the fact that you got there with a big payment late in the year, or a big credit, compensate successfully for having missed early estimated -tax payments? Or would you still risk getting dinged for late estimated?
    – keshlam
    Commented Feb 18 at 8:36

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