Got hit with $2,800 in estimated tax penalties - first year making decent money freelancing

I just got my 2024 taxes done and I owe $2,800 in estimated tax penalties on top of my regular tax bill. I'm shocked and kind of panicking.

Background: I was a W-2 employee making $50K until July 2024. Then I went full-time freelance and made $85K in just 6 months (Aug-Dec). Total income for 2024 was $135K.

I paid my full tax bill when I filed in February, but the IRS is penalizing me because I didn't make quarterly estimated payments. Nobody told me I had to do that!

Is there any way to get this penalty waived? This seems really unfair for a first-time freelancer.

Oof, I learned this lesson the hard way too. The IRS expects you to pay taxes as you earn, not just at the end of the year.

When you were W-2, your employer withheld taxes from every paycheck. As a freelancer, YOU'RE responsible for making those payments quarterly.

The penalty is basically interest on the amount you should have paid earlier. It sucks but it's how the system works.

Let me explain the rules and then discuss potential penalty relief options.

Estimated tax requirements: You must make quarterly estimated tax payments if you expect to owe $1,000 or more when you file. The payments are due:

• Q1: April 15
• Q2: June 15
• Q3: September 15
• Q4: January 15 (following year)

To avoid penalties, you generally need to pay the LESSER of:

• 90% of current year tax liability, OR
• 100% of prior year tax liability (110% if AGI over $150K)

However, there are some safe harbors and exceptions that might help you.

Wait, so if I had just paid 100% of my 2023 tax throughout 2024, I wouldn't have any penalty? Even though my 2024 income was way higher?

My 2023 tax was only like $4,000 because I was making $50K all year. My 2024 tax is $28,000.

Correct! That's the prior year safe harbor. If you had paid $4,000 throughout 2024 (either through withholding or estimated payments), you'd have no penalty, even though you owed $28K total.

Here's what might help you:

1. Annualized income method: Since your income wasn't evenly distributed (you earned most of it Aug-Dec), you can use Form 2210 Schedule AI to calculate penalties based on when you actually earned the money. This often reduces or eliminates penalties.
2. First-time penalty abatement: The IRS has a first-time penalty abatement program. If you've filed on time and paid your taxes for the past 3 years, they'll often waive penalties as a one-time courtesy.
3. Reasonable cause: You can request a waiver based on reasonable cause, though "I didn't know" usually doesn't qualify.

Did your tax preparer calculate the penalty using the annualized method?

I used TurboTax and I don't think it did that calculation. It just showed me the penalty amount on Form 2210.

I definitely qualify for first-time penalty abatement - I've filed on time and paid in full for the past 5 years. How do I request that?

First-time abatement is your best bet. It's administrative relief and the IRS grants it pretty readily if you qualify.

To request it:

• Call the IRS at 1-800-829-1040
• Tell them you want to request first-time penalty abatement for estimated tax penalties
• They'll verify you have a clean compliance history
• If approved, they waive the penalty immediately

You can also write a letter, but calling is faster. I've had clients get this approved in a 10-minute phone call.

Also, for 2025, make sure you start making quarterly payments! Don't get hit with this again.

A good rule of thumb: set aside 30-35% of every payment you receive for taxes. Put it in a separate savings account and don't touch it.

Then make estimated payments each quarter. You can do it online at IRS.gov/payments.

One more thing - you should also run the annualized income calculation even if you get first-time abatement. Here's why:

Since you only went full-time freelance in August, your income was heavily weighted to the second half of the year. The annualized method calculates what you owed each quarter based on actual income to that point, not evenly spreading your annual liability.

This could reduce your penalty from $2,800 to maybe $800-1,200. Then first-time abatement wipes out whatever remains.

Form 2210 Schedule AI is complicated. Consider having a CPA run the calculation - it'll cost you $200-300 but could save you $1,500+.

Pro tip: If you're married, you can also adjust your spouse's W-2 withholding to cover your estimated taxes. Withholding is treated as paid evenly throughout the year (even if it all comes out in December), so you avoid the quarterly payment headache.

My wife increased her W-4 withholding to cover my self-employment tax. Way easier than making quarterly payments.

Update: I called the IRS and requested first-time penalty abatement. The agent was actually really helpful (shocking, I know).

She confirmed I have a clean compliance history and approved the waiver on the spot. The $2,800 penalty is being removed!

I also hired a CPA to help me set up quarterly payments for 2025. Not making this mistake again.

Thanks everyone for the guidance. This community is a lifesaver!

Excellent outcome! First-time abatement is one of the most underutilized tax relief options.

Just remember - you only get it once. If you miss estimated payments again in the future, you won't qualify for this relief a second time.

Good luck with your freelance business!

This thread is so helpful - I'm in almost the exact same boat right now. Went full-time freelance in July 2025 and just realized I haven't made any estimated tax payments. I've made about $62K since July and I'm terrified of getting hit with penalties when I file in April.

One question: if I make a huge Q4 estimated payment in January (before the Jan 15 deadline), does that help reduce the penalty? Or is the penalty already locked in based on when I should have paid throughout the year?

Also planning to use first-time penalty abatement like OP did, but want to minimize the penalty amount first if possible.