A new freelancer in NYC. Estimated taxes when spouse is w-2.

[ChrisP81]

Hi

Am starting a freelancer journey, and despite the IRS.gov and NY Dept. of Finance websites the process is very much a blur. 

Married filing jointly in New York City. Spouse on W-2 and primary taxpayer when filing, making a few times times more than me. Me: for this year, W-2 for the first few months of the year and some freelance income (from work that would be done in the last two months of 2023). Next year I'll be full freelance.  Given the nature of the freelance work, deductions are negligible. 

1. Trying to figure out how to pay the estimated taxes (city, state, federal and FICA) for the freelance work that will fall in the last two months of the year. I did not know I'll end up on the freelance route so late in the year. I know I have to pay by January 15, but will penalties be associated? Should the w-2 spouse increase their withholding at work considering the estimate I'll be making for these last two months? I'm also confused if this withholding from my spouse's paycheck would also cover my FICA taxes or if I should calculate and pay that 15.3% amount directly through my personal EFTPS account. And of course, I'm trying to figure out how to best pay estimated taxes on freelance work next year. I have created my EFTPS account and the account with the NY Dept. of Taxation and Finance. Anything to keep in mind vis-a-vis these systems with this scenario of spouse on w-2 and me freelancing?

Thank you! 

[rjs]

What you are calling FICA tax is self-employment tax. It's included in the total tax on your federal tax return. You don't pay it separately.

You can cover the tax on your self-employment income (i.e. freelance income) either by making an estimated tax payment or by your spouse increasing withholding for the rest of the year. Either way there should be no penalty. If you make the estimated tax payment you might have to make some extra entries on your tax return to avoid a penalty, but if the amount is small it might not matter. Using withholding will definitely avoid a penalty. You can use the Tax Withholding Estimator on the IRS web site to figure out what your spouse should put on the W-4 form. The estimated tax or withholding covers all the tax on your federal tax return, including the self-employment tax.

New York City tax is included in the total tax on your New York state tax return. You don't pay it separately.

[fanfare]

IRS requires you to estimate your total tax for the year and pay as you go.

you can base your estimate on prior year's tax, or 90% of this year's tax, whichever is smaller.
each quarter your estimated tax paid and withheld must be at least 25% of the estimate, even if your income is uneven, this is the simpiified method.
if your estimate is based on this year's tax and turns out to be wrong you may be penalized.
you can compensate by overestimating.
if your estimate is based on prior year's tax, you know that when you file by April 15, which is also the first estimated tax payment due date. How convenient.

Since your spouse has W-2 withholding you can subtract that yearly amount to arrive at Estimated Tax payments.

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If your quarterly withholding and estimates for 2024 are at least 100% / 4 = 25% ( 110% / 4 for certain high income taxpayers) of your 2023 tax, there will be no penalty on your 2024 tax return, regardless of any jump in income.

Your total tax includes SE tax.

@ChrisP81  

[rjs]

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@ChrisP81  wrote:

Spouse on W-2 and primary taxpayer when filing

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It makes no difference who is primary and who is secondary on the tax return. They are treated the same. But the IRS says you should keep them in the same order from year to year.