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Employment

How a second job or side gig affects your taxes

Jo Willetts, EA

Director, Tax Resources

Published on: November 02, 2022

Call it what you will: a side job, side hustle, freelance gig—they all affect your taxes and tax status.

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 - Sole Proprietor, 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 tp. If you work for one employer, the company will stop withholding your Social Security taxes from your paycheck once you reach that point. But if you work for more than one company, each will withhold, and the total could surpass the max you should have to pay into Social Security. It’s up to you to notify one or all companies to be sure you don’t pay too much. 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 $9114, and you are only taxed on $147,000 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.

Tax Tip: Remember to pay estimated taxes

If you’re a freelancer, self-employed, or in the gig economy, you should be making estimated tax payments every quarter.

Pay estimated taxes every quarter to avoid penalties

1st quarter
Jan 1 – Mar 31
2nd quarter
Apr 1 – May 31
3rd quarter
Jun 1 – Aug 31
4th quarter
Sep 1 – Dec 31
Due April 15 Due June 15 Due Sept 15 Due Jan 15

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. 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.

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-employed 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 of side gig income to withhold for taxes

How much you need to withhold depends on several things, but a good rule of thumb is to set aside 20–35% for 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 25 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.

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