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.

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Originally Posted by MukatA

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

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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.