Tax Year Prior to 2020: If I have independent contractor income AND W-2 income, I only have to pay estimated taxes for my independent contractor income this year, correct?

[mikhasan]

Since I expect to continue my contractor work in 2017, I want to know how much I need to withhold. I want to withhold part of my 2016 tax refund so I don't have to deal with quarterly installments of estimated taxes.

[KarenL2]

Yes.  Also, you could also adjust your tax withholding to compensate for the estimated tax payment so you don't have to send them.  

For federal taxes, there are two amounts that need to be added together for your estimated tax payments.  The self-employment tax rate of 15.3% plus your ordinary income tax rate (which depends on your taxable income and filing status).  The following article has easy to read tables for this amount http://taxfoundation.org/article/2017-tax-brackets

How you figure out your estimated amount is to take your gross self-employment income minus expenses to get your "net" taxable self-employment income.  Then, multiply that by the 15.3% self-employment tax rate.  

Then, look up the rate on the charts for your annual total taxable income (in the link above)  and multiple that by the percentage for your total income you expect for the entire year. Add those to tax amounts together.

[mikhasan]

Thank you. If I decide to withhold my 2016 tax refund or increase my tax withholding for my W-2 work as you suggested, could I still be penalized for not making quarterly installments if I don't meet the "safe harbor" requirement by the end of the year?

[KarenL2]

If you didn't pay enough tax throughout the year, either through withholding or by making estimated tax payments, you may have to pay a penalty for underpayment of estimated tax. Generally, most taxpayers will avoid this penalty if they either owe less than $1,000 in tax after subtracting their withholding and estimated tax payments, or if they paid at least 90% of the tax for the current year or 100% of the tax shown on the return for the prior year, whichever is smaller.

[mikhasan]

So if at the end of the year I end up earning more than expected and my W-2/tax return withholding do not meet the safe harbor requirement, can I simply pay the remainder by 12/31 or would I be penalized for not accurately paying earlier? (My independent contractor income is unpredictable.) Thank you.

[KarenL2]

You would be penalized if you don't fall under one of the three exceptions I stated above.  It is a "pay as you earn" system.  The easiest way to prevent this is by paying at least the amount of tax liability for the prior year (which would be this year's taxes) as I stated above.