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Greetings, I am turning to the board again for help. I am a 2002 graduate of an internal medicine residency (despite my screen name!). Since October I have been moonlighting in Urgent Care but it looks like I am going to accept a poition as an associate in a group practice come March. I will continue moonlighting through February as an independent contractor but when I sign the contract I won't be able to do this anymore.

Nonetheless, my new income will be a base salary of around $120K per annum plus bonuses if certain productivity targets are met. To me, this is a pretty big number, especially as I have just done a rough computation of my 2002 taxes and my 2002 taxable income is under $18K!

So now I am coming here to ask several questions about filling out my W-4 withholdings, plus to request information on how to handle quarterly estimated payments if I must make them to cover for the taxes owed on the income generated by my independent contractor moonlighting. Some facts: I am single and I don't expect this status to change in 2003 (my fiance and I have not yet set a date). I have no dependents. I can claim "1" for exemptions - not blind, not over 65. I do not anticipate any deduction for retirement contributions in 2003 nor will I be eligible for any credit towards student loan interest payment. The only other increase in my income from the base salary will be any interest and dividends I earn (which I expect won't exceed, say, $600 - my so-called savings is going straight to the student loan debt), plus my moonlighting which by the end of February will total something like $6000 gross year to date. I've set aside about 60% of these proceeds in anticipation of the federal (including SSI/Medicare) and Arizona state taxes owed on it but have not distributed these proceeds yet in the form of quarterly payments. I'm told I will be paid biweekly.

My questions:
1) What should I request in withholding allowance in order to cover all my expected taxes? Zero "0" or one "1" or some other number? I would like to owe the IRS no more than $100 at tax time in 2004 and would like to owe Arizona no more than that, either. Arizona deductions are pegged as a percentage of federal deductions so I have to kind of back-calculate once I have settled on my federal deduction to see if my proposed selected Arizona percentage will cover the necessary withholding or whether I have to bump to the next higher selectable percentage bracket to meet my targets.
2) If I can jigger my withholding plus request an extra amount taken out per biweekly paycheck so that even my moonlighting income gets covered for taxes owed, do I really need to make quarterly payments? Or should I leave my pending paychecks alone and make those payments anyway out of the money I've already set aside? (I guess I am asking whether I am always obligated to make quarterly payments in future tax years if I have done so in 2003).
3) What happens to any deduction for social security when my actual earnings hit $84,900 (or whatever number it is in 2003 that hits the SSN maximum for deduction)? Do I see a sudden increase in my paycheck or is it somehow averaged out over the year's anticipated pay?
4) Is there anything else I should be thinking about? I understand that my premium deductions for health (medical/dental) and life insurance (should I choose to take it) are supposed to be taken from pre-tax monies which lowers the gross income threshold a bit, but I will still be in the 35% bracket, it appears.

Granted, the numbers are bigger than what I have been used to working with but I don't want to misunderstand if there are any other adjustments to taxes that go along with exceeding income thresholds for certain required deductions. My primary objective is to ascertain that I am not going to have any nasty tax obligation surprises. But my other objective is to see whether I can come up with a close estimate for my net paycheck amount. I want to start planning my budget to include substantial payments towards my hefty student loans (while still covering for ongoing household expenses and irregular payments for insurance, etc.). Thanks for any assistance you can offer!

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