Announcement

Collapse
No announcement yet.

W2 + 1099 Safe harbor Questions!

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • W2 + 1099 Safe harbor Questions!

    Safe Harbor
    My wife and I both earn W2 income. For the first time I will also have 1099 income this quarter.
    I am finding the overlap between withholding for W-2 and making quarterly payments for 1099 confusing.

    I was hoping to get clarification on a few hypothetical situations.

    1) If my wife and I elect to withhold >110% of last year's taxes via our W-2 jobs, would that absolve me from having to file any quarterly documents for my 1099 income (1040-ES)?
    2) If our combined W2 withholdings will fall short of the 110% mark before 12/31/21, can I reach the safe harbor by making up the difference in a (4th) quarterly (1040ES) estimated payment?
    3) Thinking about next year, instead of trying to juggle both W2 withholding and 1099 quarterly payments, would it make sense to a) adjust our W2 withholdings to reach 110% by 12/31/22 and skip Quarterly estimated tax payments for the 1099 or b) opt out of W2 withholding and pay the 110% for the year in quarterly installments through the 1040ES. which is better?


    Thanks!

  • #2
    1) Is the best solution. 110% via w-2 withholding. Any estimated payments by quarter are calculated by date paid. If by w-2, the date paid Is bypassed.

    Comment


    • #3
      Agree with Tim. The IRS treats withholding as spread evenly throughout the year, no matter when the withholding occurs. However, the estimate you pay in Jan will not be treated as spread evenly but as paid in on the date received and on income spread evenly throughout the year. If you started your 1099 work in the 4th quarter, you should file IRS Form 2210 to annualize your income, which will identify the period you earned 1099 and equate it with the estimated payment. This should work out fine for you. Otherwise, you’ll want to increase your December withholding by the amount you calculate you’ll need to pay in to meet safe harbor.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

      Comment


      • #4
        Originally posted by CaffeineNepenthe View Post
        3) Thinking about next year, instead of trying to juggle both W2 withholding and 1099 quarterly payments, would it make sense to a) adjust our W2 withholdings to reach 110% by 12/31/22 and skip Quarterly estimated tax payments for the 1099 or b) opt out of W2 withholding and pay the 110% for the year in quarterly installments through the 1040ES. which is better?[/FONT]
        I agree with
        Tim and
        jfoxcpacfp
        Moderator
        jfoxcpacfp that for 2021, increasing W-2 withholding is probably best. Form 2210 is not so much fun for the uninitiated.

        Note: There is also a 90% of current year tax liability safe harbor, but that will factor in SE taxes on the 1099 income. Still, you only need to meet the lower safe harbors.

        The question for 2022 is one of circumstances. Will your 2022 1099 be reasonably consistent and the total known for the entire year? If so you can make equal quarterly estimated tax payments and if the 1099 income becomes higher during the year you can increase your W-2 withholding.

        Finally, you can not opt out of W-2 withholding unless you had no tax liability in the prior year and expect to have no tax liability in the current year. This generally only applies to teenagers, college students and other low wage part-time employees.

        P.S. It would be a good idea to check with payroll and see how quickly changes in withholding can take effect.

        Comment


        • #5
          Tactically, the only time you should use estimated payments is if 110% creates a large refund. You should have the cash available to pay the taxes. For NEXT year, you should adjust the W-2 withholding that you are not trapped with a year end W-2 adjustment that might be short or just simply insufficient .
          https://www.irs.gov/individuals/tax-...ding-estimator
          The answer is to calculate the taxes each quarter, and adjust as W-2 with holdings if possible.

          Comment


          • #6
            Thanks so much, this really helps!
            I will speak to payroll to see if I can adjust my W2 withholdings in time for my December paycheck. Darn, it was supposed to be a juicy one too given that I'll have finished maxing IRA/403B in Nov.
            Just to clarify:
            1) If I meet safe harbor with W2 income then I do not need to file any quarterly paperwork with IRS right?
            2) Tim, if I am targeting the safe harbor for 2022 why would I need a calculator? Wouldn't I just take the 110% target from 2021 and divide by number of paychecks to reach the amount of money per paycheck withholdings?

            Comment


            • #7
              Originally posted by CaffeineNepenthe View Post
              Thanks so much, this really helps!
              I will speak to payroll to see if I can adjust my W2 withholdings in time for my December paycheck. Darn, it was supposed to be a juicy one too given that I'll have finished maxing IRA/403B in Nov.
              Just to clarify:
              1) If I meet safe harbor with W2 income then I do not need to file any quarterly paperwork with IRS right?
              2) Tim, if I am targeting the safe harbor for 2022 why would I need a calculator? Wouldn't I just take the 110% target from 2021 and divide by number of paychecks to reach the amount of money per paycheck withholdings?
              1.) No. There is no quarterly paperwork anyway if you're doing equal payments. You just make a quarterly payment and that's that.
              2.) Correct.

              Comment


              • #8
                Wish it was less complicated.
                Listen to the people above + double check with CPA

                Comment


                • #9
                  I am in the same situation, and the 110% at the W2 job seems easiest. My 1099 will be variable, aka 50k quarter one and maybe 10k quarter 2, etc. Is it possible to pay quarterly taxes based on each quarter income (or does it still need to be paid over the year). Aka can I pay taxes on 50k quarter 1 and on 10k quarter 2, or do I need to guesstimate total income 1099 for year and do 1/4 of this?

                  Still trying to get best sense of how best to do this. Our HR department is a mess and last time I adjusted withholding a took 2 months to adjust, so I’m not sure it will be “easy” to make quarterly adjustments. Sounds like 110% based on withholdings and then plan on a big tax bill may be safest option.

                  Comment


                  • #10
                    Originally posted by 16amt21 View Post
                    I am in the same situation, and the 110% at the W2 job seems easiest. My 1099 will be variable, aka 50k quarter one and maybe 10k quarter 2, etc. Is it possible to pay quarterly taxes based on each quarter income (or does it still need to be paid over the year). Aka can I pay taxes on 50k quarter 1 and on 10k quarter 2, or do I need to guesstimate total income 1099 for year and do 1/4 of this?

                    Still trying to get best sense of how best to do this. Our HR department is a mess and last time I adjusted withholding a took 2 months to adjust, so I’m not sure it will be “easy” to make quarterly adjustments. Sounds like 110% based on withholdings and then plan on a big tax bill may be safest option.
                    You're right, the 110% at the W2 job is the easiest and most sound. I wouldn't recommend you waste time trying to sort out 110% of the tax you will owe on each quarter's1099 income unless your W2 income is significantly lower in 2022 than in 2021.

                    Why are hospitals' HR departments always such a mess? Not the first time I've found this to be true and still hoping to meet a really efficient one...
                    Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                    Comment


                    • #11
                      Originally posted by jfoxcpacfp View Post

                      You're right, the 110% at the W2 job is the easiest and most sound. I wouldn't recommend you waste time trying to sort out 110% of the tax you will owe on each quarter's1099 income unless your W2 income is significantly lower in 2022 than in 2021.

                      Why are hospitals' HR departments always such a mess? Not the first time I've found this to be true and still hoping to meet a really efficient one...
                      mid to high 4s W2 with 50-100 1099….so 110% is way to go sounds like. Ideally would love to lower my W2 by 100k and replace with the 1099 since would be a bit more flexible for home life, but going to wait a year to make sure works out, etc

                      Comment


                      • #12
                        Originally posted by 16amt21 View Post

                        mid to high 4s W2 with 50-100 1099….so 110% is way to go sounds like. Ideally would love to lower my W2 by 100k and replace with the 1099 since would be a bit more flexible for home life, but going to wait a year to make sure works out, etc
                        Moving some to 1099 w/b good as long as you don’t lose health ins bene’s at your W2 work. Of course, would NOT recommend you replace the income at the same workplace!
                        Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                        Comment


                        • #13
                          Originally posted by jfoxcpacfp View Post

                          Moving some to 1099 w/b good as long as you don’t lose health ins bene’s at your W2 work. Of course, would NOT recommend you replace the income at the same workplace!
                          If all goes well going to ask for some extra unpaid leave to stay full time (or potentially part time and pay a bit more for benefits). We get 5 weeks vacation, so may ask for contract when comes time to redo next year maybe up to 7 weeks unpaid (would still be considered over FTE). Would allow me to take off a week a month then (7 weeks plus 5 vacation). I am in a high burn out field but 1 week off a month seems like something I could do for a while and give some decompression throughout the year.

                          Comment


                          • #14
                            Originally posted by 16amt21 View Post

                            If all goes well going to ask for some extra unpaid leave to stay full time (or potentially part time and pay a bit more for benefits). We get 5 weeks vacation, so may ask for contract when comes time to redo next year maybe up to 7 weeks unpaid (would still be considered over FTE). Would allow me to take off a week a month then (7 weeks plus 5 vacation). I am in a high burn out field but 1 week off a month seems like something I could do for a while and give some decompression throughout the year.
                            I’m glad you’re addressing the issue now - good luck!
                            Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                            Comment


                            • #15
                              Originally posted by spiritrider View Post
                              Finally, you can not opt out of W-2 withholding unless you had no tax liability in the prior year and expect to have no tax liability in the current year.
                              Can you cite this? My understanding was that you could opt out of W-2 withholding of Federal Income Tax and just make quarterly payments (110% Safe harbor) directly through the IRS website on the appropriate months. Would love to know now, as that's how my wife and I are planning to deal with 2022 taxes.

                              Comment

                              Working...
                              X