It’s a reality these days that many workers are opting to get a second job or become part of the gig economy. That extra pay can be nice, but you also have to consider the changes in your tax obligations. Those new to having a second job might find that the regulations on filing taxes with two jobs can seem quite confusing. It’s a challenge that might make you wish you had the help of qualified tax professionals. This guide will give you essential tips to ensure you don’t get on the wrong side of the IRS simply because you have a new stream of income.
How Filing Taxes With Two Jobs Affects Your Return
Getting a second job can be exciting. It might allow you to buy that fancy car you’ve been eyeing or attain a financial milestone you always dreamed of. Rarely do people think about how much the IRS will now expect them to pay, though.
You may have to increase your tax withholding, or the added income may put you in a higher tax bracket, depending on the type of job you have. Here are a few possible situations:
Traditional jobs
Filing taxes with two jobs is much easier when you have a traditional job that pays an hourly wage or a monthly stipend. This means you will also get a W-2 from your second job, and the IRS will require you to file a W-9 form that spells out how much taxes your employer will withhold.
Some people choose to claim zero on the W-9 form of their second employer. This might seem like an easier option, but many of these people end up owing more than they paid the IRS. It’s imperative in such a case to make any necessary adjustments when filing your income taxes. You can also choose to use a withholding calculator to find an estimate of the taxes the IRS will expect you to pay.
Freelancing
Things can get more challenging when filing taxes with two jobs if you’re a freelancer or an independent contractor. That’s because no one withholds your earnings, and you’ll be responsible for paying all your taxes.
The IRS expects you to make quarterly payments if you are an independent contractor and estimate your taxes. That might seem like too much of a task, but skipping those quarterly payments can lead the IRS to penalize you for underpayment of taxes.
Working two jobs is a great way to earn extra money, but if you’re not careful with your taxes, they can become an expensive and time-consuming chore. The last thing you want is to get tangled up with the IRS or pay more than you had to. You may want to consult with tax professionals to ensure you’re maximizing your outcome.
4 Tips to Consider When Filing Taxes With Two Jobs
No one likes to work hard all year and take home way less than they made. This is why you need to ensure that you pay the amount of taxes owed and not a dime more. Here are some things to keep in mind when filing taxes with two jobs:
1. Keep Track of Your Social Security Taxes
It’s easy to focus on your income taxes and forget about other equally important obligations that affect your tax bill. Remember that you’ll have to pay Social Security tax and Medicaid insurance as well, and having multiple jobs puts you at risk of overpaying. The IRS sets a Social Security taxable income limit every year, which is $142,800 for 2021, and the agency set the maximum taxpayer amount at $8,853. Those with multiple jobs who fail to keep track of their taxes can end up paying more than the maximum. You can claim the excess money back when you file your tax return if this happens to you.
2. Watch Your Tax Bracket
Another key issue to keep in mind is how a second job may affect your tax bracket. The U.S. has a progressive taxation system, which means the more you earn, the more you pay in taxes. You risk changing your tax bracket once you get another income stream, even if it’s just a few extra bucks. Those who earn $35,000 per year are in the 12% tax bracket, for instance. A second job that pays you an extra $20,000 will bump you up to the 22% bracket, so you’ll pay much more taxes. A great way to circumvent this issue is to get a second job that gives you extra income, but not so much that it changes your bracket.
3. Don’t Forget State Taxes
You may also have to pay state or local taxes on your multiple income streams, but this depends on your state. Those who also have to pay local or state taxes should be sure to account for all their income when filing their state return. Each state has different rules and tax rates, which means you may have to contact your state or get in touch with a tax professional.
File the Right Forms
The law mandates that all employers report their employees’ wages and withhold their income taxes every year, and they must record those amounts on a W-2 form. Having two jobs means you’ll likely get two W-2s, but this shouldn’t worry you. Add up your total income from Box 1 of each form to get your total taxable income. Getting a second job or an increase in income means you’ll have to revisit the amount of taxes you withhold. You should fill out the W-4 form afresh so your company knows how much they should withhold from your wages.
Having a lucrative side gig can be a great move, but it can also lead to disappointment if you don’t pay the right amount of tax and draw the scrutiny of the IRS. A tax professional can help you avoid any confusion and ensure that you don’t overpay, so you get maximum benefit from all your revenue.
Let Us Help You File Your Taxes If You Have Multiple Jobs
Taxes are always a pain, and even more so if you’re filing taxes with two jobs. You don’t have to walk down this path alone, though. Silver Tax Group has a team of experienced tax attorneys who will help you maximize your tax outcome, even if you have multiple jobs. Simply contact us today to book an appointment or speak with a tax expert.
