I will have several changes to my tax situation when filing next year including:

Status changing from Single to Married Filing Jointly
Will be making individual contributions to an HSA
Expect to buy a house to take advantage of $8,000 home buyer credit
Worked first 6 months of year on 1099 with no withholdings
I will convert to full time with W-2 in July and my wife also works full time on W-2

I did not file estimated taxes while on 1099. I understand that as long as I pay as much through withholdings this year as I owed in total taxes last year, then I will avoid penalty. My question is as follows:

How does this work when adding my wife's income? Also, how do self-employment taxes figure in to this equation?

For the purpose of estimated taxes, the total taxes paid last year is the total ot the tax shown on your separate returns.

For the purpose of estimated taxes, the total taxes paid last year is the total ot the tax shown on your separate returns.

That's not what I'm asking, let me be more clear. I am not filing estimated taxes, I want to know the minimum I need to have withheld from paychecks (mine and my wife's) to avoid penalty for not filing estimates.

I understand that as long as I have withheld this year as much as I paid last year that there will be no penalty. First of all, is this correct? Secondly, "as much as I paid last year", is this referring to only income taxes or Social Security and Medicare taxes as well since I will have to pay that on self employment income? What about the self employment taxes? If I have as much income taxes withheld this year as I paid last year, I will still owe a substantial amount in Social Security and Medicare (both halves) while I was self employed. Will that cause me to owe a penalty?

Look at the final amount owed on your 2007 tax return.

As long as you withhold at least that amount, you will NOT pay any under-payment penalty. This is one of the "safe harbors" allowed to tax payers, and applies as long as the difference between your 2007 and 2008 income is not more than $150,000.