How a second job or side gig affects your taxes

If you’ve never had a side hustle or second job before, understanding how this income factors into your taxes can be a challenge.

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.

What info does the IRS need for a side gig on my taxes?

The IRS considers you self-employed if you work as a freelancer, independent contractor or in a side gig. This means you must include the income on Schedule C - Profit or Loss From Business, when you complete your tax return. Whether you get a Form 1099-NEC, Form 1099-K, or cash, you must report all forms of payment, including cash, property, goods, or virtual currency. If you don’t, the IRS could penalize you. The good news is you can also take deductions against that income to reduce your tax bill.

What if I have multiple W-2 forms?

If you have more than one job during the year, make sure you don’t pay more into Social Security than you have to. If you work for one employer, the company will stop withholding your Social Security taxes from your paycheck once you reach the annual wage maxium. But if you work for more than one company, each will withhold, and the combined total withholding could surpass the max you should have to pay into Social Security. Of course, if it turns out you paid in too much, you can get it back.

What is the maximum Social Security tax?

This year’s maximum Social Security taxes are $11,439, and you are only taxed on $184,500 of income. If you worked for one employer and paid too much, you’ll need to contact your employer for a refund on 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.

Pay estimated taxes every quarter to avoid penalties

Tip: If you work as a freelancer, self-employed, or in the gig economy, you should be making estimated tax payments every quarter.

How to file taxes for side jobs

When your income increases, taxes could increase, too. Make sure you’re withholding the right amount from your paycheck or paying enough estimated taxes to cover the increase, particularly if this is your first time having a second job or side gig. If you are self-employed, make sure you’re keeping receipts of all your expenses as well as a journal of all the miles you are driving for your job. You may be able to use these expenses to offset your income, lowering your tax bill.

How much can you make without filing taxes?

You need to claim all the income you earn from any job. If you are (or were) an employee for someone during the year, they must issue you a W-2 reporting your wages, and the amounts withheld for Social Security, Medicare, federal and state taxes. Each tax year has filing requirement thresholds based on filing status and age. 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 as the tax return filing requirement for the self-employed is just $400 of net earnings.

Will self-employment income (full or part time or a little or a lot) make my taxes more complicated?

The short answer is yes. If you have self-employment or side income during the year, it will complicate your federal, state, and local taxes. The good news is tax rules for small businesses and self-employed professionals, including part-time gig income, are some of the best and most beneficial of all tax rules. There are benefits, tax deductions, special rules and other nuances that can reduce your taxable income and often create an overall tax loss to offset your regular income. If you know the rules, you’ll likely pay less in taxes.

How much side gig income to estimate for taxes

How much you need to set asidedepends on several things, but a good rule of thumb is to set aside 20% to 35% for combined income and social security taxes. If you look at your regular job’s paycheck breakdown, your employer takes a chunk of your salary to pay for federal, state and local tax withholding. As for your side gigs, you need to keep track of the money coming in, and pay estimated taxes so you’re not penalized, or caught by surprise.

Side income is a good thing, as long as you report it. Just don’t forget to take deductions, too! Using accounting software or hiring an accountant can help. And of course, you can talk to a Jackson Hewitt Tax Pro any time of year.

About the Author

Jo Willetts, Director of Tax Resources at Jackson Hewitt, has more than 35 years of experience in the tax industry. As an Enrolled Agent, Jo has attained the highest level of certification for a tax professional. She began her career at Jackson Hewitt as a Tax Pro, working her way up to General Manager of a franchise store. In her current role, Jo provides expert knowledge company-wide to ensure that tax information distributed through all Jackson Hewitt channels is current and accurate.

Jackson Hewitt Editorial Policy