I typed “I made more money this year — do I owe the IRS now?” into a search bar late one night, and the honest answer came back faster than I liked: probably yes. More than you think, usually.
A raise, a bonus, some 1099 work on the side — all good news, all capable of quietly outrunning the withholding your employer set up when you were making noticeably less. Here’s what I’d do if I were you, in roughly one afternoon.
The raise isn’t the problem. Your W-4 is.
Your W-4 tells your employer how much to withhold based on the snapshot you gave them the day you filled it out. If that was years ago — before the promotion, before the second paycheck, before the weekend side project — the form is still describing a version of your life that doesn’t exist. Payroll has no way to know you changed.
The fix is boring and free. Pull up your most recent pay stub, run the numbers through the IRS Tax Withholding Estimator, and update your W-4. Do it once a year, and again any time your income jumps by a few thousand dollars. Do it mid-year and you catch the shortfall before it becomes an April surprise.
That side gig has its own tax, and nobody withholds for it
On a W-2 job, Social Security and Medicare come out automatically, and your employer covers half. On 1099 income, you are both the employee and the employer. That’s self-employment tax — the same two levies stacked on top of your regular income tax.
On a meaningful chunk of freelance income, that layer alone can run well into four figures, before any federal income tax. And the IRS wants it in quarterly installments during the year — April, June, September, January — not one lump sum in April.
Two habits keep this from getting messy:
- Sweep a fixed percentage. Every time a client pays, move a healthy slice into a separate savings account and pretend the money was never yours. When the quarterly deadlines hit, the cash is already there.
- Track deductions as you go. Software subscriptions, a share of your phone bill, mileage to client meetings, the home office. Reconstructing a full year of expenses from memory in March is how people leave real money on the table.
The 401(k) is the lever most people don’t pull
Extra income creates extra tax. It also creates extra room to move money somewhere the tax code actually rewards. For most of us, that’s the workplace retirement plan.
The IRS says you can contribute up to $24,500 to a 401(k) in 2026, and up to $7,500 to an IRA. Every pre-tax dollar you shift into a traditional 401(k) lowers this year’s taxable income by that same dollar. Bump the contribution rate by a couple of percentage points and you’ve moved a real amount of income into your own future, tax-free.
That’s not a trick. That’s the deal Congress wrote.
Renters can skim this. Homeowners, read it twice.
If you bought a place last year — in a state with real income and property taxes, like California, New York, New Jersey, or Illinois — you’re looking at mortgage interest, property tax bills, and state income tax withholding all stacking up on the itemized side.
For years, the cap on the state and local tax (SALT) deduction made itemizing feel pointless for most young homeowners. That changed: the SALT cap jumped from $10,000 to $40,000 starting in 2025 and ticks up slightly each year through 2029. If you carry a real state tax bill plus real property taxes, that cap used to strand actual money. Now it doesn’t.
This doesn’t mean everyone should itemize — the standard deduction is still higher for a lot of filers. But if you’re a homeowner in a high-tax state and you’ve been on autopilot since 2018, this is the year to run the numbers side by side. Don’t take the standard deduction just because you always have.
When to just hire someone
At this point our hypothetical reader has a W-2, a 1099, quarterly estimated payments, a mortgage, a state return, and a 401(k) they’re about to bump up before December 31. That’s the moment where DIYing in TurboTax stops being a frugality flex and starts being a way to overpay by hundreds or thousands of dollars.
You don’t need a full-time accountant. You need one conversation, once a year, with someone who does this for a living. A good tax pro finds deductions you didn’t know existed, tells you whether an S-corp election makes sense for the side income, and flags state-return quirks that national software handles poorly — in California, for example, firms build strategy around the state’s specific rules, which national tools tend to treat as an afterthought.
My rough test: if your return this year involves any two of the items below, get help.
- Self-employment income — even a few thousand dollars in 1099 work changes the shape of the return.
- A move between states — two part-year returns, two sets of rules, one very confused piece of software.
- A home purchase or sale — closing documents carry deductions people routinely miss.
- Equity compensation — RSUs, ISOs, and ESPPs each have their own landmines.
- A significant income jump — new brackets, new phase-outs on credits, and often a first exposure to estimated taxes.
Worth It?
Worth it — the W-4 update is free, and the 401(k) bump pays you back in tax savings immediately. The paid tax pro is worth it too, but only if you check two or more boxes above; otherwise a good evening with the estimator is plenty.
When should I update my W-4?
Once a year at minimum, and any time your income changes by a few thousand dollars or more — a raise, a second job, or a new side hustle all qualify.
Do I have to make quarterly payments for 1099 income?
The IRS expects it, yes — installments in April, June, September, and January. Sweeping a fixed percentage of every payment into savings is the simplest way to make sure the cash is there.
Should I itemize or take the standard deduction?
Run both, side by side. With the SALT cap now $40,000 (up from $10,000), homeowners in high-tax states may finally win by itemizing — but the standard deduction is still higher for a lot of filers.
A note from Dana: I used to treat “tax stuff” as a once-a-year panic. The difference is one afternoon of paying attention — update the W-4 tonight, open the savings bucket for the freelance money, and nudge the 401(k) up before the last paycheck of the year. Making more money is the goal; keeping more of it is a separate skill, and nobody’s going to knock on your desk to remind you to learn it.