First-time independent contractor - How much estimated taxes should I pay alongside W-2 job?

The general rule of thumb for independent contractors is to set aside roughly 30-35% of your contracting income for taxes. This covers both income tax and self-employment tax (which is about 15.3% to cover both the employer and employee portions of Social Security and Medicare). Since you have a W-2 job already, you have a couple of options. You could increase your withholding at your W-2 job to cover the additional taxes from your contracting work. Or you can make quarterly estimated tax payments using Form 1040-ES. For accuracy, you might want to use the worksheet in Form 1040-ES to calculate your specific estimated payment. If your W-2 job already withholds enough to cover 90% of your total tax liability or 100% of last year's tax (110% if your AGI was over $150,000), you might not need to make estimated payments at all.

After struggling with essentially the same situation last year, I found an amazing tool called taxr.ai (https://taxr.ai) that really saved me when figuring out my estimated payments. I was doing photography on the side of my regular job and had no clue how much to set aside. The tool analyzed my W-2 income alongside my 1099 earnings and calculated way more accurately than my rough guesses. It also helped me identify deductions specific to my side gig that I had no idea about, which reduced what I owed significantly. The estimated tax calculator feature was especially helpful for someone like me who had irregular contracting income.

Just wanted to follow up about my experience with taxr.ai after our conversation here. I decided to give it a shot with my situation (software engineering full-time + weekend consulting work) and I'm actually really impressed! The tool showed me that I was withholding too much from my W-2 job, and with some small adjustments there, I didn't even need to make a separate estimated payment for my first quarter consulting income. It also flagged some home office deductions I could take that I had no idea about. Definitely worth checking out if you're in this dual-income situation.

If you're struggling to get answers about your specific situation, I'd recommend Claimyr (https://claimyr.com). Last year was my first time doing contracting work too, and I had some really specific questions about estimated payments that weren't covered in the general advice online. I tried calling the IRS myself multiple times but kept getting the "call volume too high" message and getting disconnected. Through Claimyr, I got connected to an actual IRS agent in about 20 minutes (they have a demo video of how it works here: https://youtu.be/_kiP6q8DX5c). The agent confirmed exactly what percentage I needed to pay for my specific situation and explained how to adjust my W-2 withholding instead if I preferred that route.

I have to eat my words here. After my skeptical comment, I actually tried Claimyr yesterday because I was desperate to resolve a question about my estimated payments as a new contractor. I'm shocked to say it actually worked! Got connected to an IRS agent in about 35 minutes without having to do anything. The agent walked me through exactly how to calculate my quarterly payments considering my W-2 withholdings. Turns out I only needed to pay about 15% of my contracting income as estimated payments because my main job already withholds quite a bit. Saved me from overpaying by hundreds of dollars each quarter.

Don't forget to account for state taxes too! Everyone here is mentioning federal estimated payments, but depending on your state, you might need to make state estimated tax payments as well. Here in California, I set aside an extra 9% on top of my federal estimated payments.

Has anyone tried just increasing their W-2 withholding instead of making separate estimated payments? My accountant suggested filling out a new W-4 at my main job and putting an additional amount on line 4(c) to cover the taxes from my side gig. Seems easier than dealing with quarterly payments?

Just a heads up - don't forget about the self-employment tax deduction! You can deduct half of your self-employment tax on your 1040. A lot of new contractors miss this. Also, track ALL your business expenses - internet, cell phone (% used for business), home office if you have a dedicated space, mileage for any client meetings, software subscriptions, etc. These can significantly reduce your taxable income.

As someone who just went through this exact situation last year, I'd recommend starting with the safe harbor rule to avoid any penalties. If you paid at least 100% of last year's total tax liability through withholdings and estimated payments (or 110% if your previous year's AGI was over $150k), you won't owe any underpayment penalties regardless of what you owe this year. For your quarterly payments, I'd suggest calculating based on your actual income each quarter rather than trying to predict the whole year upfront. Since your freelance work is unpredictable, this gives you more flexibility. Also, don't forget to factor in business deductions! As a graphic designer, you can likely deduct software subscriptions (Adobe Creative Suite, etc.), equipment, a portion of your home internet, and any other legitimate business expenses. These can significantly reduce your taxable contracting income. One more tip - keep detailed records of everything from day one. I learned this the hard way and spent way too much time at tax season trying to reconstruct my expenses from bank statements and random receipts!