W4 Questions: Handling TWO jobs and tax withholding when changing from contractor to employee

This is actually a pretty common situation! Let me break it down for you. For those first couple months as a contractor, you're responsible for paying your own taxes through quarterly estimated payments. Since they're switching you to W-4 employee status now, you'll need to handle those contractor months separately. For your W-4 at the second job, you'll want to check the box in Step 2(c) that indicates you have multiple jobs. You might also want to use the IRS Tax Withholding Estimator online to figure out extra withholding for Step 4(c). Since you're going from contractor to employee mid-year, it's a good idea to have a bit extra withheld. As for making up for those months without withholding - you can't retroactively have them withhold what should have been taken out before. Instead, you should set aside about 25-30% of what you earned during the contractor period to cover your self-employment tax and income tax.

I went through something similar last year and found an amazing tool that saved me so much stress. It's called taxr.ai (https://taxr.ai) and it helped me figure out exactly what to do with my mixed W-9/W-4 situation. I was worried about getting hit with penalties for not having enough withholding after switching from contractor to employee, but their system analyzed both income types and showed me exactly how much extra to have withheld on my W-4 to cover everything. They even created a personalized withholding plan that made sure I wouldn't owe a surprise amount at tax time. The best part was how it walked me through filling out the W-4 correctly for a second job - totally different than what I would have done on my own!

Just wanted to follow up! I tried taxr.ai after seeing it mentioned here and wow - it was exactly what I needed. The tool immediately identified that I needed to adjust my withholding at my main job to cover the contractor income from earlier in the year. It generated a custom W-4 for me with the perfect amount in line 4(c) for additional withholding to avoid underpayment penalties. Super easy to understand and I didn't have to do any math myself. They even explained how my contractor income would be reported on Schedule C vs the W-2 income. Definitely checking this out again next year!

If you're worried about tax problems with the IRS over this change from contractor to employee, you might want to check out Claimyr (https://claimyr.com). I had a similar situation last year and ended up with some discrepancies that triggered a letter from the IRS. Trying to call the IRS was a nightmare - I spent HOURS on hold and kept getting disconnected. Then I found Claimyr and watched their demo video (https://youtu.be/_kiP6q8DX5c) and decided to try it. They got me connected to an actual IRS agent in about 45 minutes instead of the 3+ hours I was waiting before. The agent helped me sort out exactly how to report my income correctly and what documentation I needed to keep from my employer about the classification change. Totally worth it to get definitive answers directly from the IRS!

I'm coming back to admit I was totally wrong about Claimyr. After being skeptical, I decided to try it anyway because I was desperate to talk to someone about my contractor-to-employee situation similar to the original post. I was literally shocked when I got a call back saying they had an IRS agent on the line. Took about an hour (not the 4+ hours I was spending before). The agent confirmed that for the W-9 contractor portion, I needed to file Schedule C and pay self-employment tax, but they also told me about a safe harbor provision I didn't know about that would help me avoid underpayment penalties. For anyone dealing with this contractor/employee switch situation, getting clear answers directly from the IRS was actually super helpful. They walked me through exactly how to adjust my W-4 to account for the previous contractor income.

One thing nobody mentioned is that you should get clarification from your employer about exactly WHEN the status change is effective. Is it from the date you sign the W-4, or are they retroactively classifying you as an employee from your start date? If they're changing your classification retroactively, they should issue you a W-2 for the entire period and handle the employer portion of FICA taxes, which would actually save you money compared to self-employment taxes. If not, make sure they give you a 1099-NEC for the contractor period at tax time. You don't want to end up in a situation where they don't send you either form for those initial months!

Wait, I'm confused about this W-4 form. I have 2 jobs too and I think I did mine wrong. For step 2, did you check box c or did you fill out the multiple jobs worksheet? And how much extra withholding did you put for line 4c?

This is a really comprehensive discussion! I'm in a similar boat but with a twist - my employer is making the switch from contractor to employee retroactive to my start date, which means they're going to issue me a corrected W-2 for the whole period instead of a 1099-NEC. Has anyone dealt with this retroactive situation before? My HR department says they'll adjust my future paychecks to account for the taxes they should have been withholding all along, but I'm worried about how this affects my cash flow. They're basically going to take out several months worth of back-taxes from my upcoming checks. Also, since they're handling it retroactively, do I still need to worry about estimated quarterly payments or does this take care of everything? I don't want to overpay if the employer withholding will cover it all.