follow-up

That’s a great follow-up! While the 42% estimated tax liability may seem high, it’s based on a conservative calculation to avoid surprises, especially because your full-time income already places you in a higher tax bracket. However, you may not need to set aside the full 42%. Here’s why and how to refine your approach:

Why the Estimate is Conservative

Self-Employment Tax is Fixed at 15.3%: This part won’t change unless you have business expenses that reduce your taxable self-employment income.
Federal Income Tax is Marginal: Only a portion of your Remotasks income is taxed at your marginal rate (likely 22%), not the entire $4,000.
Deductions Reduce Your Taxable Income: If you claim any business expenses, they lower your taxable self-employment income, reducing the taxes owed.
State Taxes Vary: Depending on your state, the actual tax rate might be lower than the 5% average used in the calculation.

More Precise Estimate

Let’s adjust for typical deductions and take a realistic approach to setting aside money for taxes.

If You Deduct Business Expenses

Let’s assume you deduct 10%-15% of your $4,000 side income for expenses (e.g., internet, software, or equipment). This reduces your taxable side income to around $3,400-$3,600. The recalculated tax liability might look like this:

Self-Employment Tax (15.3%): ~$520
Federal Income Tax (22%): ~$750
State Tax (5%): ~$170

New Total Tax Liability: ~$1,440-$1,500 (~36%-38% of gross income). In this case, setting aside 35%-38% is more accurate.

How Much Should You Set Aside?

If you prefer simplicity and certainty:

Stick with 30%-35% of your gross income as a safe amount.
This gives you a buffer in case you owe slightly more and avoids penalties.

If you’re comfortable refining your estimate later:

Start with 25%-30% of gross income.
Adjust your savings after reviewing your actual deductions and tax liability during tax filing or quarterly payment calculations.

Final Thoughts

While 42% is a cautious starting point, it’s more likely you’ll owe 30%-35% after deductions. Setting aside this range will leave you well-prepared without tying up too much cash unnecessarily. At tax time, if you find you’ve saved more than needed, you’ll have extra funds to invest or use elsewhere.