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With many Americans unfortunately out of work, furloughed, or coping with reduced hours as a result of the Coronavirus pandemic, side gig earnings may have been critical for you this year. And if you’ve never had a side hustle or second job before, understanding how this income factors into your taxes can be confusing.
Whether you’re a life-long side-gigger or a first-timer, here’s everything you need to know about how a second job or side gig affects your taxes.
Did you do additional work as a freelancer or independent contractor?
If you work as a freelancer, independent contractor, for cash, or in a side gig you are considered self-employed and must include the income on a Schedule C, Sole Proprietor, on your tax return. Whether you get a Form 1099-MISC, Form 1099-K, or just cash or checks and have to track the income yourself, you must claim all of your income.
What if I have multiple W-2 forms?
Make sure you don’t pay too much in Social Security taxes. There is a maximum amount of Social Security taxes you have to pay each year. If you work for one employer, they will stop withholding your Social Security taxes once you reach that point. The maximum Social Security earnings this year is $137,700, and your maximum Social Security taxes are $8,537.40. If you worked for one employer and paid too much, you must contact your employer for a refund of the overpayment. If you work for more than one employer, you can claim any excess Social Security taxes paid when you file your tax return.
Will working a second job affect my taxes?
Anytime you increase your income, you have the potential of increasing your taxes. Make sure you are withholding the right amount to cover your taxes, particularly if this is your first time having a second job or side gig as a result of Coronavirus. If you are self-employed, make sure you are keeping receipts of all your expenses as well as a journal of all the miles you are driving for your job.
If I earned less than $400 from my second job, do I have to claim it?
You must claim all the income you earn from any job. If you are/were an employee for someone during the year, they must issue you a W-2 reporting your wages, Social Security, and Medicare taxes withheld, and any federal and state income taxes withheld. If you are working as an independent contractor, have a side gig, or are starting your own business, keep track of your income and expenses and report them on your tax return.
If I have self-employment income (full or part time or little or a lot), will my taxes be more complicated?
Well, the short answer is YES. If you have self employed or side income during the year, your taxes overall will be more complicated both federal and likely state too. However, there is good news. The tax rules for small business and self employed including even part time gig income are some of the best and most beneficial of all tax rules. There are benefits, tax deductions, special rules and a lot more that can reduce your taxable income and even sometimes create an overall tax loss and offset your regular income. Know the rules and pay less taxes.
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