Your primary goal when you take on a second job is likely to pay off debt or reach some other financial milestone. The last thing on your mind might be how that job will affect how much you pay in taxes. Withheld taxes will reduce your take-home pay, and that second job could also bump you up to a higher tax bracket.
Learn more about how different types of jobs, from traditional wage work to freelancing, can affect your taxes.
Key Takeaways
- Adding a second income to your original income can sometimes push you up into a higher tax bracket, so you’ll be paying a greater percentage in taxes on the income from a second job.
- It’s key to get your withholding just right if you’re working for salary or wages so you’re not hit with a surprise tax bill at tax time.
- Freelancers and employees can remit estimated taxes to the IRS to cover the additional income.
- Qualifying for some tax breaks depends on your adjusted gross income, so you could find that a second job makes you ineligible.
A Traditional Second Job
You're working for a regular salary or hourly wage if you have a traditional second job. You'll receive a W-2 at tax time, and you'll have to fill out a W-4 with your withholding information.
One easy option might be to claim zero on your second paycheck if you already have another job where taxes are withheld. It can be a good idea to check the IRS withholding calculator to find out whether you need to make adjustments to accommodate this increase in your income. The IRS will want the money all at once when you file your tax return if it turns out that you owe more than you had withheld.
Note
Be sure to consider both your federal and state taxes when you determine how they will be affected by a second job.
Working As a Freelancer
Things will be a bit more complicated if you're working as a freelancer or other type of independent contractor. You're responsible for making estimated tax payments in this case. No one will be withholding taxes from your pay and forwarding the money to the government on your behalf.
Estimated tax payments are due quarterly. You can determine how much you should be sending to the IRS to cover tax on this new income by talking to an accountant or using a tax calculator. You can also calculate how much you should remit by completing IRS Form 1040-ES.
Note
You'll have to pay self-employment taxes in addition to income tax if you're self-employed. These are the Social Security and Medicare taxes that you would ordinarily split 50-50 with your employer. You'll have to pay 100% if you're self-employed, because you are your employer, but these taxes can and should be included with your quarterly payments.
The Effect on Your Tax Bracket
The U.S. tax system is progressive. Tax rates increase as you earn more. It could change your tax bracket if you get a second job, and your income increases enough to push you into the next-highest bracket.
Maybe you're single and on a course to earn $40,000 from your first job. That puts you in a 12% tax bracket for the 2022 tax year. Suppose you take on a second job that's going to pay you an additional $10,000 per year, bringing your total annual income to $50,000. The portion of your income over $41,775 will be taxed at 22% in 2022, because you've been pushed into a higher tax bracket.
You'll be giving the IRS 10% more in tax on most of your second job's earnings.
Note
Make sure you're on track with your taxes in August or September so you'll have time to start saving additional money before Tax Day if necessary. You can also make quarterly estimated payments even if you're having taxes withheld from your paychecks from one or two regular jobs.
A second job may be just what you need to pay off debt or meet another financial goal if your income falls low enough in your existing tax bracket that your tax rate won't increase on those added dollars.
Other Changes to Your Tax Situation
Other tax changes might also occur with more income. A second job might make you ineligible for the Earned Income Credit this year, even if you could claim it last year, because qualifying for it depends a great deal on your income.
Numerous other tax credits and deductions depend on your adjusted gross income (AGI) as well, including the itemized medical expense deduction, the education tax credits, and the child and dependent care tax credit. These credits "phase out" and become less advantageous as you earn more, until they finally become unavailable entirely.
The Bottom Line
Working a second job can be tiring and stressful, but it can be a short-term solution for a particular financial need. You might find that additional income isn’t worth the potential taxes depending on a variety of factors. It might be better to cut your spending and stick to a budget instead.
Frequently Asked Questions (FAQs)
Do you have to claim income from a second job on your taxes?
The IRS requires that you report all income earned from any jobs, whether as an employee or an independent contractor. The payer doesn't have to report what it paid you to the IRS if you earn less than $600 as an independent contractor, but you must still report those earnings on your tax return.
How can I reduce my taxes?
You can look for ways to reduce your tax bill If you're concerned that the income from a second job might push you into higher tax bracket, You may want to itemize your deductions if you pay a lot in mortgage interest, medical expenses, and charitable donations, and this adds up to more than the standard deduction you're entitled to claim for your filing status. You may be able to claim various self-employment deductions.