Primary income via W2 with some 1099 earnings as well

[myschmoop]

I have a full-time job (W2) and also do contract work (1099) as a side gig.  I need to know whether my current approach to taxes is appropriate.  At present, I increase my state and federal withholding from my W2 employment to accommodate the additional untaxed 1099 earnings.  I do not pay estimated taxes (no quarterly taxes).  Instead, I enter both the W2 and 1099 earnings when I file my taxes annually.  Is this approach correct or should I be doing something else?

[SwapnaM]

Yes. You can increase the withholdings with your employer, Filing a new W4. If you have a "regular job" in addition to your self-employment, you may be able to increase your federal tax withholding at that job to cover the taxes on your self-employment income. If you can do so, you won't have to pay estimated taxes. However, if you still owe at least $1,000 even after increasing your withholding, then you must make some estimated tax payments. By year's end, your estimated payments (including employer withholding) must equal at least 90 percent of your tax liability for the current year or 100 percent of your tax liability from last year. If it doesn’t, you may be subject to an estimated tax penalty.

You can use the Tax caster tools: https://turbotax.intuit.com/tax-tools/calculators/taxcaster/

https://turbotax.intuit.com/tax-tools/calculators/w4/ 

[myschmoop]

I need clarification.  Part of your response was, "However, if you still owe at least $1,000 even after increasing your withholding, then you must make some estimated tax payments. By year's end, your estimated payments (including employer withholding) must equal at least 90 percent of your tax liability for the current year or 100 percent of your tax liability from last year. If it doesn’t, you may be subject to an estimated tax penalty."

By the time I know whether I owe $1,000 or more for tax year 2023 -- when I am doing my taxes in early Spring 2024 -- it will be too late to pay estimated tax payments for 2023.  What am I misunderstanding?

For 2022, I had no 1099 income and received a $13,120 federal refund due to added withholding.  If I make $20,000 in 1099 income in 2023 (at the 32% tax bracket), is it likely that I need to increase my withholding even more this year?

[SwapnaM]

Hello ,

If your estimated payments and tax withholding for the year equals your total tax for the previous year, then you typically wouldn't need to pay estimated taxes to avoid penalties.

1. If your prior year Adjusted Gross Income was $150,000 or less, then you can avoid a penalty if you pay either 90 percent of this year's income tax liability or 100 percent of your income tax liability from last year (dividing what you paid last year into four quarterly payments). 
2. If your prior year's Adjusted Gross Income was greater than $150,000, then you'll need to pay either 90 percent of this year's income tax liability or 110 percent of last year's tax liability.

I would suggest using the TAX CASTER TOOL. This is just an estimate. Also if you used TurboTax to file 2022 tax return, you can estimate the taxes by entering your 2022 return through" add a state" option & then follow instructions below:

• Start at Other Tax Situations
• Scroll down to Other Tax Forms
• Choose Form W-4 and Estimated Taxes
• Continue through the interview

There will be sections provided for you to estimate your income for 2023.  If you have a recent pay stub I suggest you have it with you.