Extra Withholding or Estimated Payments?

[Trevuchet]

My wife and I file jointly and both work full-time, but for the last few years I’ve also earned $10-$20k through various side gig activities (no withholding applies). We thought that we both answered the W-4 withholding set up questions correctly at our respective jobs to withhold the right amount, but for the last two years we’ve ended up with very large tax bills. What avenue is the best one to take to avoid having this happen in the future and having to pay additional fees?

[VolvoGirl]

1099NEC is for self employment income.  You will pay Self Employment tax (Scheduled SE) on a Net Profit of $400 or more on Schedule C in addition to regular income tax on it.   You pay 15.3% SE tax on 92.35% of your Net Profit (If it is greater than $400).  The 15.3% self employed SE Tax is to pay both the employer part and employee part of Social Security and Medicare.  So you get social security credit for it when you retire.  

if you cant increase your W2 withholding enough to cover the self employment tax you should send in quarterly estimated payments.

To prepare estimates for next year you start with your current return, but be careful not to change anything.  For Online returns, if you can't get back into your return, Click on Add a State to let you back into your retun.

You can just type W4 in the search box at the top of your return , click on Find. Then Click on Jump To and it will take you to the estimated tax payments section. Say no to changing your W-4 and the next screen will start the estimated taxes section.

Or Go to….

Federal Taxes or Personal (Desktop H&B)

Other Tax Situations

Other Tax Forms

Form W-4 and Estimated Taxes - Click the Start or Update button

Or you can pay directly on the IRS website https://www.irs.gov/payments

Be sure to pick the right kind of payment and year.....2024 Estimate

[JasonH24]

The thing you need to do is get a handle on what your tax liability will be before April 15th. To do this we recommend using a Tax Calculator: https://turbotax.intuit.com/tax-tools/calculators/taxcaster/.

Use your paystubs and best estimate for your gig work (this would go under Self-employment). After you do the calculation you can make an estimated payment to make up any tax that may be due. The gig work makes it difficult to use a W-4 to cover your taxes because of its unpredictability.

[Terri Lynn · Accepted solution]

 Hello and good afternoon, Trevuchet!

Based on the information you provided, I would suggest a couple possible steps you could take to help to help reduce or potentially elimnate your tax bill, and ensure you will not owe additional penalties.   

1. You will want to check your W-4 and be sure that you have selected to be treated as  single or married filing separate as your filing status in step 1c.  This will cause withholdings to be at a slightly higher rate than if you select married filing joint and it does not impact the status you will be using on your actual tax return.  
2. You can mark the multiple jobs box in step 2, this will cause a slightly higher withholding as well.  
3. I would suggest carefully looking at step 4, where you can report additional income to be take into consideration or ask for an additional amount to be withheld out of each pay period if desired.  
4. To avoid the underpayment of tax penalties, you will want to follow the IRS  "safe harbor" methods for determining whether you are subject to a penalty. If you meet one of these safe harbor amounts, the IRS won't charge an estimated tax penalty, even if you owe more than $1,000 at the end of the year. You will need to pay 90% of the tax you owe for the current year  by making timely quarterly estimated tax payments or through paycheck withholding. Or pay 100%  of last year's tax bill of the tax shown on your prior-year tax return before applying estimated payments, withholding, or refundable tax credits. If your adjusted gross income is more than $150,000 (or $75,000 if you're married and file a separate return from your spouse), the safe harbor is 110% of your prior-year tax.

You also mentioned that you do side gig jobs that add up to somewhere between $10,000 and $20,000 in additional income that have no witholdings taken out for taxes This is normal for this type of income because it is treated as contracted or self employment income.  In this situation, it is usually best, and often required, that you make quarterly etimated tax payments.  The IRS generally expects that you will pay your taxes as you go throughout the year by making quarterly estimated tax payments based on your total earnings, after expenses for each quarter.

Here are a few links to articles ,and tools that you may find helpful.

• Adjusting Your W4 
• When and How to Pay Estimated Taxes 
• Guide to Paying Quarterly Taxes  
• Guide to IRS Penalties and How to Avoid Them 
• Fatten Your Paycheck and Still Get a Refund 

Thank you for joining us today and please have a great rest of your day!

Terri Lynn, EA

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