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No. of Recommendations: 3
My answers:

1) If I were you, I would leave exemptions at 1 (or even 0) for now. Don't try to get it right based on what you think you'll earn; I would say that it's impossible just now to fix it so that, with no other changes, you'll be within $100 next year! (I diligently work at figuring out my withholding, but due to the vagaries of capital gains, I'm never within $100, or even $300, of my final liability.) I figure the main thing is to avoid a huge bill, and especially to avoid a penalty. Anyway, leave it for now. After you join group practice and start with a fairly stable, predictable, salary, you can do a better estimate of your yearly income, project withholding, and make adjustments.

2) You don't need to make quarterly payments. It sounds like you'll have to stop with the moonlighting when you sign with group. So at some point you'll have a good number on the extra income, and you'll be able to predict pretty accurately how that will add to your liability. You can then bump up withholding somewhat to cover that. One nice thing about withholding is that it is treated (by the IRS) as having been done uniformly throughout the year. So if you have a look in Sept-Oct and find that you're going to come up short, you can increase withholding significantly in last few months, and all will be fine - well, except that you'll have rather less disposable income late in the year! You'll be ok next year in any case, with regard to penalties, even if you do nothing because of moonlighting income. That's because one of the so-called safe harbors, when penalties don't apply, is to have your withholding exceed the previous year's actual tax. It sounds like this year (that is, the 2002 tax year) you have small income and will pay very little in taxes. As long as you have at least that much withheld in 2003, no penalties. And re quarterly payments, no, you don't have to keep doing them once you start. If you do them one year the IRS will send you vouchers for the following year, but you can toss them if you don't need them. (Sometimes I do quarterly payments, mostly I don't...)

3) Yes, when you pass the SS threshhold, you will see your net pay increase, and stay that way to the end of the year. In January, you start again with SS payments.

4) Hey, you don't have to anticipate everything months in advance - it's ok to go with the flow, and adjust on the fly! (I would think that doctors would be used to doing just that...)

In short, adjust things when you have a better handle on projected income/withholding, and be sure to take a closer look in early fall.


P.S. I thought residents worked a gazillion hours a week, and slept the rest of the time. How to you find time to make such a lengthy post? (I'm retired, so I have nothing but time on my hands, there's my excuse...)
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