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I've been self-employed for a while, and am now starting a second job with an employer. I'm a bit confused as to how I should complete the W-4 - I just want to make sure I'm paying the correct amount of taxes (both income tax and self-employment tax).

For reference: I live in Texas, United States

It's my understanding that I don't have to add my estimated self-employment income to my W-4 unless I want my new job to also withhold my self-employment taxes (please correct me if I'm wrong). But here's my issue/confusion:

Without my self-employment income, my new job will put me in the 12% tax bracket. But, if I add my projected self-employment income, that will put me in the 22% tax bracket.

I would prefer for my job to withhold federal etc. income tax, and I continue to pay my quarterly estimated self-employment taxes. So I'm leaning towards not putting my self-employment income on my W-4.

BUT if I jump up to the 22% tax-bracket (because of my added self-employment income), and my job is only withholding 12% of my paychecks, then won't I owe a bunch of taxes at the end of the year?

How should I fill out my W-4 so that the appropriate amount of tax is being taken? I also don't want them to take TOO MUCH (more than usual) and leave me with baby paychecks.

I hope this is clear enough - I'm very confused about this and don't want this to be a big problem come tax time next year. Thanks for your help!

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  • You can use the 2nd job worksheet on the W4 to adjust withholdings if you want (you'd have to adjust for passthrough deduction and self employment tax if you wanted to get it very close. Or you can make up the shortage via quarterly estimated payments. Make sure you pay enough throughout the year to avoid penalty.
    – Hart CO
    Feb 19 at 23:49

2 Answers 2

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To avoid late-payment fees in the US, you will need to estimate what your taxes are likely to be, then either

(1) Tell your employer to increase withholding enough to cover what you think your actual taxes will be (just as you could if you were expecting significant income from investments or other sources and wanted that mostly covered by withholding to minimize how much you had to send with the tax forms), or

(2) File quarterly estimated-taxes forms and payments with the IRS yourself in lieu of withholding (which is what you'd do if you didn't have salary income), or

(3) Some combination of the two.

Your employer can't do this calculation for you since they don't know what your other income will be. But the worksheets for estimated tax will give you some idea of how much you will owe, and you can figure out from that how much you want withheld per paycheck and/or how much you want to make a quarterly payment of.

REMEMBER THAT TAX BRACKETS ARE INCREMENTAL. The portion that would have been taxed at 12% is still taxed at 12%. Only the amount which exceeds that range gets taxed at a higher rate. Ditto for subsequent brackets. You won't owe 22% on your entire earnings.

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    THANK YOU so much for this! Your explanation really helped. I did not know that tax brackets are incremental! Now I do :) I had a number figured out to put in box 4c for extra withholdings (based on the estimators/calculators), but I didn't understand that number. Now knowing that the brackets are incremental, I completely understand how that number was calculated. I appreciate your help!!!
    – iamtea
    Feb 20 at 0:48
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Your question is somewhat confusing. It doesn't matter how you pay your estimated taxes, you still need to pay them throughout the year. So if your employer doesn't withhold enough to cover your tax liability - you still need to pay that amount.

Using salary withholding makes things more convenient - you don't need to deal with making timely estimated payments, dealing with unequal income distribution throughout the year, or deal with the additional paperwork.

Seems like your SE income is significantly more than your salary. That means that if you don't have enough withholding and estimate payments you'll end up with a significant tax bill next year + underpayment penalties. To cover this you'll probably need to adjust your W4 to withhold larger amounts from your salary, and receive "baby paychecks". But, you'll have your SE income as well. So your total net income is the same, no matter how you slice it to pay your estimated tax payments.

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  • sorry for the confusion! My estimated SE income for the year is about half of what my salary will be, but it still puts me in a different tax bracket. I would rather pay my SE taxes separately, as I take on project-based work, so this income can vary. My fear is that my employer will only withhold 12% of my income, when they should withhold 22% (because of my SE income). I'm just not sure how to note that on the W-4 without having my employer also withhold my SE taxes. Do I just calculate the difference between the 12% & 22% and ask them to withhold that extra amount in box 4c?
    – iamtea
    Feb 19 at 22:45
  • @iamtea I don't understand what you're saying. I'm just not sure how to note that on the W-4 without having my employer also withhold my SE taxes. - what does this mean? Do you want them to withhold as if you have no other income? Then they'll withhold based on the 12% bracket calculation. If you want them to cover your SE, they'll need to know how much you plan on earning and withhold accordingly. W4 has nothing to do with brackets, it only asks for income information. And yes, you can ask them to withhold specific amount listed in box 4c.
    – littleadv
    Feb 19 at 22:48
  • okay - if my SE income didn't put me in a different tax bracket, I wouldn't have this confusion. I do not want my employer to pay my SE taxes. But I want them to withhold from my salary based on the 22% bracket. But if I tell them my SE income (so they know I'm in the 22% bracket), then they'll withhold my SE taxes as well (which I don't want). So should I just calculate the 10% difference based on my salary, and add that to box 4c, to ensure 22% is withheld from my salary?
    – iamtea
    Feb 19 at 23:03
  • I'm still confused about this whole bracket argument. The employer is not going to pay your taxes, you are. What do you mean by "my SE taxes" and why don't you want your employer to withhold it? It seems like you completely misunderstand what withholding is.
    – littleadv
    Feb 19 at 23:23

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