Working more than one job? You’re not alone.
While the Federal Reserve Bank of St. Louis shows that only 4.4% of Americans had multiple jobs at the beginning of 2021, that doesn’t account for the people who have side hustles or who don’t report their extra income.
But, what happens if you’re working multiple jobs and want to file your taxes correctly? How hard is it to do?
How Multiple Jobs Impact You and Your Withholding
When talking about working “multiple jobs,” we need to consider a few scenarios.
Multiple Jobs as an Employee, But One at a Time
The first is throughout the year you have worked multiple jobs, but you only held down one job at a time. For example, maybe you started the year working at one accounting firm, but later found a better paying job at another one. So, you switched jobs. When it comes time to file your taxes, you will have W2s from multiple jobs, but you only worked one at a time.
If you work one job at a time, then the only thing you might want to consider is if you should have more taxes withheld if you get a significant raise at the new job.
More Than One Job at a Time as an Employee
In our second scenario, you actually work more than one job at a time. Perhaps you have a full-time job, but want to make some extra money so you deliver pizza for a restaurant in your town. Or, maybe you work at night stocking shelves at a local grocery store. Either way, you are considered an employee and your companies withhold taxes from your check.
If you work multiple jobs at the same time but you are an employee, then you need to be careful about your extra job pushing you into a higher tax bracket. If this is the case, you might need to increase how much taxes are being taken out of your check.
To help you better understand how much taxes should be withheld from your check, the IRS has a Tax Withholding Estimator. Here is the information you will need for the estimator (this is only for those who have taxes taken out of their paychecks):
- Filing status (single, married, etc.)
- Will you claim dependents
- Do you have income tax withheld regularly (also how many jobs will you and your spouse have this year)
- Will you or your spouse receive pension income this year
- Miscellaneous information about Social Security, scholarships, grants, self-employment, dividends and interest, income from retirement plans, and demographics
Multiple Jobs That Includes All or Some Contract/Freelancing Work
The third scenario is you work multiple jobs at the same time, and you are part of the gig economy, so all — or some — of your earnings come from contract work. If you are a freelancer doing contracted work, then you do not have an employer who takes out income taxes, Social Security, or Medicare taxes.
When you are contracted, self-employed or work as a freelancer, then you are responsible for paying your own taxes. The IRS requires you to pay estimated taxes on a quarterly basis.
If you are required to make these estimated payments to the IRS, you can get the scoop on all that it entails in our Ultimate Guide to Paying Estimated Quarterly Taxes. It’s important to make those payments, else you might be subject to penalties.
Do I Have to File Taxes on All My Jobs?
You need to declare all income you have earned from any and all jobs. For the 2020 tax year, you will need to file taxes with the IRS if you have earned at least $400 from self-employment.
The IRS has an interactive guide to help you determine whether you need to file a tax return with the IRS.
How to File Taxes with Multiple Jobs
It is more difficult to file taxes with multiple jobs than if you only had one source of income, but it’s not as difficult as you think.
Here are six tips for filing taxes with multiple jobs.
1. Know What Types of Income Could be Taxable
What really counts as taxable income? If you withdraw from your 401(k) because you have bills to pay, would that count? What about starting a side hustle to make ends meet?
Are these types of income taxable? For the most part, they are.
Whether your income is earned or unearned, according to the IRS, it can be taxable.
Here are just a few examples of income that can be taxed:
- The paychecks you earn from your second employer
- The money you make from any and all of your side hustles
- Unemployment compensation
- Any rental income you earn
- Interest or dividends from investments
- Canceled debts, such as medical bills or credit card debt, unless it’s canceled as part of your bankruptcy
Now, this doesn’t mean that these income types will all be taxed the same. In fact, depending on what you earn, you may report it to the IRS differently.
Since you’ll most likely fall under the category of having a second job or side hustle, this brings me to my next point.
2. Prepare Your Forms Correctly at Each Job
No one likes working hard just to bring home a smaller paycheck. But, when choosing how much to withhold from your paycheck, paying more taxes is better than paying less.
No one wants the surprise of a huge tax bill at the end of the year!
With multiple jobs, you should have a separate withholding form filled out for each job.
When you’re filing taxes with multiple jobs, you have to understand how much each job is withholding, and how your taxes are calculated. Your jobs can’t and won’t communicate with the other, so it’s up to you to make sure your forms and taxes withheld are correct.
3. Understand Your W-4 Forms
If you’re working more than one job, the number of allowances you can claim are affected. Generally, when you’re single, only work one job, and no one claims you as a dependent, you would claim single with 1 allowance.
But to avoid owing too much after filing taxes when you have multiple jobs, it’s important to claim allowances correctly. In order to do this, you need to change your withholdings on your W-4 forms with your employers to make sure they’re accurate based on your calculations.
When filling out your W-4 forms, there are a few tips to keep in mind:
- For the job where you make the most money, claim all of the allowances you normally would on the W-4 form.
- For any other job that you have (your second job for example) claim zero.
If the above doesn’t make sense, think about it this way.
When you claim more allowances on your W-4 forms, less is withheld from your paycheck. This could mean that you aren’t paying enough in taxes throughout the year. But, if you claim zero at your second job, you’ll get the max amount withheld from that employer.
If you claim zero for any extra jobs except the job that makes you the most money, you’re less likely to have to spend a fortune come tax time.
4. Fill Out The Multiple Jobs Worksheet
Part of the W-4 Form is the Two-Earners/Multiple Jobs Worksheet. This sheet is typically filled out if you have multiple jobs, or if you are married and both you and your spouse work. This helps to make sure that enough taxes are withheld from your paychecks so that you won’t owe a huge tax bill during tax time.
You can’t claim less than zero withholdings, but you can have an additional dollar amount withheld from each paycheck from any employer of your choosing.
5. Watch Your Social Security Tax
When you are filing taxes with multiple jobs, it’s important to be cautious and try to avoid an overpayment on your social security tax.
In 2020, the social security taxable income limit is $137,700. So, if you make that much with your total income (with multiple jobs or if you have a working spouse), you don’t need to pay any more social security tax after that amount.
If you go over the $8,537.40 limit as an employee, an adjustment will have to be made during tax time. This is done on line 71 of the 1040 form you’ll have to fill out. If an adjustment has to be made, talk to a tax professional to make sure you do this correctly.
Note: The social security limit is $142,800/$8,853.60 for the 2021 tax year.
6. Use The Right Software
Filing taxes with multiple jobs can seem difficult, but it doesn’t have to be. By using the correct software, you can save yourself a headache and from reporting incorrect information. Here are a few of the software tools I recommend.
FreshBooks is a great accounting software to use if you’re self-employed, and I’ve used it personally for years.
With FreshBooks, you can:
- Share your information with your accountant easily.
- Keep tax information and records clean.
- Spend less time on paperwork during tax time.
With QuickBooks, you can:
- Pay taxes right through their site, based on the income you earn.
- Generate profit/loss statements with just a few clicks.
- Easily track expenses and income from multiple jobs directly through your bank account.
Hurdlr is a tool used to organize and track your side hustle or second job income, expenses, and taxes. I would highly recommend Hurdlr if your second job is a side hustle, involves a lot of driving, or you’re an independent contractor.
With Hurdlr, you can:
- Monitor your income and expenses.
- Track mileage if you have a side hustle or are an independent contractor for your second job.
- Estimates your taxes and pay as you need (although you can’t pay directly through Hurdlr).
Other Items To Note: Filing Taxes With Multiple Jobs
While the above tips will help you file taxes easier when working multiple jobs, here are a few more items to note.
1. Getting A Big Refund Isn’t Best
A tax refund is basically when you lend your hard-earned money throughout the year to the government at 0% interest. Then, come tax time, you get that money back.
So, while owing too much in taxes can be a bad thing, getting too much back can be too. It’s best to be as close to $0 as possible.
Instead of lending your money to the government for 0% interest, you can sock it away in a high yield savings account and earn interest for yourself.
2. Remember State and Local Taxes
Depending on where you’re located, you may have to pay state and local income taxes from your jobs as well. Just like with federal taxes, the same rules will apply for state and local income taxes.
To make sure your filing is all correct, contact your state and local income tax authorities for more information.
3. Be Careful If You’re Freelancing On The Side
When you’re freelancing on the side, things can become more complicated. Because of freelancing, you’ll have to set aside a portion of what you make so you can pay for your own taxes since you don’t have an employer to withhold money for you. You can determine how much you’ll put aside to cover taxes, but a general rule of thumb is to save 25-30% of what you earn.
Also, keep in mind that you’ll also need to pay self-employment taxes, and you may have to pay quarterly payments. Check with a tax professional if you plan on freelancing so you can make sure that you’re withholding enough money.
Keep this in mind if you decide to freelance as your second job:
A side hustle doesn’t always equal a full profit. You must factor in all the expenses that you incurred while running your business. Remember that you can deduct these expenses.
Also, remember that they have to be ordinary and necessary for you to conduct your business. This will generate a profit or loss that will be reported on your 1040 form.
If you do make a profit in your side hustle, you will then add that amount to your taxable income. If you had a loss, you can subtract it from your taxable income.
How to Avoid Quarterly Tax Payments If You Freelance
As you know, your employers all withhold taxes from your paychecks throughout the year so you don’t have to save up money for taxes yourself. This is typically what results in you getting a refund, or at the very least, you not owing anything extra to the government when you file your tax returns.
If you plan on freelancing as a side hustle, you can avoid paying quarterly estimated taxes by increasing how much you’re paying in taxes with your full-time paycheck. This will help you compensate for the taxes you aren’t paying on your freelancing income.
To do this, fill out a new W-4 form and change your allowances to zero as soon as you start earning money from your side hustle. You’ll receive less money in your paycheck, but you’ll most likely be able to skip paying extra taxes at the end of the year.
4. Think About Other Changes During The Year
If you get a second job, it could be helpful in the short run, but it could also cause you to get bumped up in a new tax bracket. Plus, it could also change whether or not you receive certain credits.
On top of being put in a higher tax bracket, other major changes in your year (like having a baby or buying a home) can affect what you owe. Earning money from dividends or receiving a raise could also cause you to owe more in taxes.
While these items may help you reach your financial goals, they could also mean more money out of your pocket come tax time. Of course, as with anything else, make sure to talk to a tax professional if you’ve made a lot of changes in the last year.
If needed, start checking in with your money around September and preparing documents to make sure that you’re saving enough money to avoid being hit with a surprisingly large tax bill.
5. You Need To Be Honest About Your Second Job
Some people take money under the table so it’s not taxed. Should the government ever find out that you’re doing this, you could face fines, extra money owed, and even jail time.
Even if you don’t trust the government or are afraid of a higher tax bracket, you need to be honest about your second job and report it.
6. Take Advantage of Deductions When You Can
Did you know that if you typically have to drive to your second job (even if it’s for the same employer), you can deduct gas mileage for the trip?
You can easily do this with one of the accounting software websites I mentioned above, or you can manually write down the mileage. If you plan on doing this via paper, just keep a small little notebook in your car along with a pen or pencil.
If you claim this mileage, you could save money on your taxes. Keep in mind that you can’t claim the mileage for driving home from your second job or driving to your first job. You’ll just have to consider that part of your commute.
7. Keep Track of All Forms and Paperwork Before You File
If you have multiple W-2s for the tax-filing year, wait to file your return until you receive all of your forms. While employers have until January 31st to issue W-2s to their employees, you may receive them on a staggering basis.
Stay patient and wait until you have all of your paperwork before filing, so you don’t have to go back and change or update your return.
You can always get started on your tax return if you’re trying to get everything organized. However, don’t fully file until you know you have all of your forms.
If you are missing a W-2 by the end of the first week of February, contact your employer immediately. There is no reason for you to have to miss the IRS deadline because of a missing form.
Taxes Are A Pain
With thousands of pages of tax lingo and all of the changes that happen year to year, nothing is ever going to be completely perfect when you file your taxes. Throw in filing taxes with multiple jobs and it can seem like a downright nightmare.
But remember that Uncle Sam doesn’t necessarily care if you’re 100% perfect. They just want their money (hence all of the laws).
So get your taxes as close as possible, and breathe. Unless you under-report thousands of dollars or are purposely evading your taxes, you’ll most likely be fine.
The most important part of tax filing is that you are being honest and truthful (to the best of your ability) about the money you’ve earned and paid over the course of a year.
Filing Taxes With Multiple Jobs
You don’t have to be a pro when filing your taxes with multiple jobs, but it is important to follow these tips and check in with your accountant or tax professional when you need to. DIYing your taxes is possible, but make sure you’re filling out the correct information.
Do you work multiple jobs? What makes it easier for you to file your taxes?