I'm no tax expert but:
I fill out a Schedule C form and have to pay Social Security tax on my income as a self-employed person.
If you have a day job that is your majority income, then earnings as a writer are probably going to be miscellaneous income on a Schedule C.
I list ALL my expenses related to my writing, including what percentage of my house is devoted exclusively to it and what percentage of utilities heats and cools that space. Every box of paper clips, the cost of the computer I bought that year, etc. gets recorded as a deduction.
In January, you get a 1099 MISC form from your publisher(s) or agent with your gross earnings on it. That goes on the C.
It's a bitch, but you can find deductions if you look hard enough.
I tried Turbo Tax but it didn't work for me with my situation, so I just file at the IRS site and let them do the math, then print the forms and mail them in. (I think it costs to do an on-line file, but don't quote me.)
Every year I have to pay in something.
However, I've been doing quarterly advance payments when I can afford it. One year I actually overpaid and got a refund, which was cool.
But yeah--keep back HALF--and if possible go ahead and send it in as a payment so you're not tempted to spend it. You'll likely get a refund at the end.