How to estimate federal and state taxes likely to be due on my side income?
"Most states that have income tax base their taxes on the income reported on your federal return, with some state-specific adjustments.  So answering your last question first:  Yes, if it matters for federal, it will matter for state (in most cases). For estimating the tax liability, I would not use the effective rate but rather use the rate for your highest tax bracket and apply that to your estimated hobby income, assuming that you primary job income won't be wildly higher or lower than last year. As @keshlam noted in a comment, this income is coming on top of whatever else you earn, so it will be taxed at your top rate. Finally, I'd check again whether this is really ""hobby"" income or if it is ""self-employment"" income.  Self-employment income will be subject to self-employment tax, which comes on top of the regular income tax."
You are correct that W-4s are very confusing for multiple income homes, and even more so if you change salary significantly during the year.  There are just too many variables in those situations to provide an effective, simple form. Unfortunately, the best way to get accurate withholdings is trial-and-error.  Try and estimate how much tax you'll have to pay for the year.  There are several calculators out there, but essentially you can take your gross income, subtract the standard exemptions for you and all dependents, subtract the standard deductions (or estimate your itemized deductions), and compute your tax based on the federal tax tables.  Then subtract any tax credits you may be eligible for. Then estimate your withholdings for the year by multiplying your current withholdings by the number of pay periods left, and adding your YTD withholdings.  If your total withholdings are higher than your estimated tax, add one or two exemptions to reduce your withholdings (and vice versa).   If all that sounds like a lot of work (which it is), at a minimum make sure you withhold as much tax as you paid last year.  That way you avoid any tax penalties, but might have a tax bill when you file.  If you want to be conservative and withhold a little extra that's fine - you might even end up with a refund when you file.  The good news is it doesn't have to be exact; any difference will determine what you pay (or what refund you get) when you file. Owing taxes to two or more levels of government isn't double taxation. It's a feature of the American union. I'm not for this bill in general, mostly for the timing and the loss of the highest bracket, but both the state and federal governments have to generate revenue, and basing rates on pure incomes with a few loopholes as possible is the most progressive way to do it. By owing taxes unadjusted for other taxes paid, there's more incentive for states to lower local taxes and to balance state programs with federal programs, and for state reps to more fairly redistribute federal transfers instead of targeting states with (usually artificially) low local taxes and fewer state programs (usually Republican). Years ago I mailed my personal tax return one day after the due date, and my check was deposited as normal, and I never heard anything about it. As an employer, I once sent in my employee's withheld federal taxes one day after the due date, and I later received a letter stating my penalty for being late worked out to be around $600. The letter stated that since this was my first time being late they would waive the fee. In both cases, they could have charged me a late fee if they wanted to. Here's an answer copied from  https://www.quora.com/Why-is-the-second-quarter-of-estimated-quarterly-taxes-only-two-months Estimated taxes used to be paid based on a calendar quarter, but in   the 60's the Oct due date was moved back to Sept to pull the third   quarter cash receipts into the previous federal budget year which   begins on Oct 1 every year, allowing the federal government to begin   the year with a current influx of cash. That left an extra month that   had to be accounted for in the schedule somewhere.  Since individuals   and most businesses report taxes on a calendar year, the fourth   quarter needed to continue to end on Dec 31 which meant the Jan 15 due   date could not be changed, that left April and July 15 dues dates that   could change.  April 15 was already widely known as the tax deadline,   so the logical choice was the second quarter which had its due date   changed from July 15 to June 15. I would say you can file your taxes on your own, but you will probably want the advice of an accountant if you need any supplies or tools for the side business that might be tax deductible. IIRC you don't have to tell your current employer for tax reasons (just check that your contract doesn't state you can't have a side job or business), but I believe you'll have to tell HMRC. At the end of the year you'll have to file a tax return and at that point in time you'll have to pay the tax on the additional earnings. These will be taxed at your highest tax rate and you might end up in a higher tax bracket, too. I'd put about 40% away for tax, that will put you on the safe side in case you end up in the high tax bracket; if not, you'll have a bit of money going spare after paying your taxes. It would be quite the trick for (a) the government to run all year and get all its revenue in April when taxes are due and (b) for people to actually save the right amount to be able to cut that check each year. W2 employers withhold the estimated federal and state taxes along with the payroll (social security) tax from each paycheck. Since the employer doesn't know how many kids you have, or how much mortgage interest, etc you will take deductions for, you can submit a W4 form to adjust withholdings.   The annual Form 1040 in April is to reconcile exact numbers, some people get a refund of some of what they paid in, others owe some money.  If one is self-employed, they are required to pay quarterly estimated taxes. And they, too, reconcile exact numbers in April. "The heart of the question is: why can't Bill just pay whatever he owes based on his income in that quarter? If Q2 is gang busters, he'll increase his tax payment. Then if Q3 is surprisingly slow, he'll pay less than he paid in Q2. I think what's most interesting about this question is that the other answers are geared towards how a taxpayer is supposed to estimate taxes. But that's not my objective -- nor is it Bill's objective. My [his] real objective is:  In other words, the answer to this question either needs to deal with not overpaying, or it needs to deal with mitigating the underpayment penalty. AFAICT, there are 2 solutions: Solution 1 Figure your estimated taxes based on last year's tax. You won't owe a penalty if your withholding + estimated tax payments in each quarter are 25% or more of your previous year's tax liability. Here's the section that I am basing this on: http://www.irs.gov/publications/p505/ch04.html Minimum required each period.   You will owe a penalty for any 2011 payment period for which your estimated tax payment plus your withholding for the period and overpayments for previous periods was less than the smaller of: 22.5% of your 2011 tax, or 25% of your 2010 tax. (Your 2010 tax return must cover a 12-month period.) Solution 2 Use the ""Annualized Income Installment Method"". This is not a method for calculating estimated taxes, per se. It's actually a method for reducing or eliminating your underpayment penalty. It's also intended to assist tax payers with unpredictable incomes. If you did not receive your income evenly throughout the year (for example, your income from a shop you operated at a marina was much larger in the summer than it was during the rest of the year), you may be able to lower or eliminate your penalty by figuring your underpayment using the annualized income installment method. Emphasis added. In order to take advantage of this, you'll need to send in a Schedule AI at the end of the year along with a Form 2210. The downside to this is that you're basically racking up underpayment penalties throughout the year, then at the end of the year you're asking the IRS to rescind your penalty. The other risk is that you still pay estimated taxes on your Q2 - Q4 earnings in Q1, you just pay much less than 25%. So if you have a windfall later in the year, I think you could get burned on your Q1 underpayment." "The short answer is - ""Your employer should typically deduct enough every paycheck so you don't owe anything on April 15th, and no more."" The long answer is ""Your employer may make an error in how much to deduct, particularly if you have more than 1 job, or have any special deductions/income. Calculate your estimated total taxes for the year by estimating all your income and deductions on a paper copy of a tax return [I say paper copy so that you become familiar with what the income and deductions actually are, whereas plugging into an online spreadsheet makes you blind to what's actually going on]. Compare that with what your employer deducts every paycheck, * the number of paychecks in the year. This tells you how much extra you will pay / be refunded on April 15th, as accurately as you can estimate your income and deductions."""