Pay estimated tax using W-4 withholding instead of quarterly payments

Question

I currently have a regular job at my university that provides about 2/3 of my annual income. I also do contract work on the side, and have some minor investment dividends and interest payments as well (~$500 a year)

The contract work is extremely sporadic; for instance, during the summer, I have more time to take contract jobs and thus have much more contract income.

What I am wondering is whether I can just adjust my W-4 with my university job to simply withhold more from each paycheck in lieu of having to file the quarterly payments. From my reading of IRS Publication 505, this seems like an allowable solution, since if done properly, I should be able to make my total owed taxes less than $1000.

Does anyone have experience just withholding from another job's W-4 instead of making quarterly payments? Should I just make quarterly payments instead?

Answer 1

Yes, you can do what you are contemplating doing, and it works quite well. Just don't get the university's payroll office too riled by going in each June, July, August and September to adjust your payroll withholding! Do it at the end of the summer when perhaps most of your contract income for the year has already been received and you have a fairly good estimate for what your tax bill will be for the coming year. Don't forget to include Social Security and Medicare taxes (both employee's share as well as employer's share) on your contract income in estimating the tax due.

The nice thing about paying estimated taxes via payroll deduction is that all that tax money can be counted as having been paid in four equal and timely quarterly payments of estimated tax, regardless of when the money was actually withheld from your university paycheck. You could (if you wanted to, and had a fat salary from the university, heh heh) have all the tax due on your contract income withheld from just your last paycheck of the year! But whether you increase the withholding in August or in December, do remember to change it back after the last paycheck of the year has been received so that next year's withholding starts out at a more mellow pace.

Answer 2

There's no reason why you couldn't have your work withhold the money for you, but you have to keep a close eye on it an file paperwork causing extra work for yourself and the payroll department. You also have that money withheld weekly instead of keeping access to the money until the end of the quarter if you paid directly to the treasury.