How Will a Second Job Affect My Taxes?
When you take on a second job, you may be thinking of paying off your debt or reaching a savings goal. You may not be thinking about how that job will affect the amount that you pay in taxes over the year. You do not want to be surprised and end up owing taxes at the end of the year. The way it affects your taxes depends a lot on how the taxes are taken out of your check and if you are working as an independent contractor.
Learn how to determine how you need to change your withholding with a second job.
Traditional Second Job
If you are working a second job where your employer does withholding, the easiest option is to claim zero on your second paycheck. However, it is still a good idea to check with the withholding calculator to see if you need to adjust your withholding amount at work. This should let you know how much you need to have withheld. This is the simplest way to handle having money withheld and you will not need to worry about sending in quarterly payments. Be sure to check to see how this will affect your state taxes too.
Working as a Freelancer or Independent Contractor
When you are working as a freelancer or a contractor, things will be a bit more complicated because you are responsible for paying your taxes yourself. Your employer will not withhold any of the money for you. You can determine how much you need to adjust your withholding amount using the calculator.
This allows you to increase the amount that your full-time employer is having withheld in your monthly paycheck.
However, the withholding calculator does not take into account the additional money you will need to pay in self-employment taxes. In addition to your income tax, you will need to pay the self-employment taxes.
Your employer holds half of this amount from your paychecks, and pays for the other half. If you are self-employed, you will pay it all. This is 15.3% of the amount you make as an independent contractor. You should either make quarterly payments or set this money aside. You can increase the amount you have withheld, but you will need to make sure that you are calculating the amount correctly.
Think About Other Changes in Your Taxes
As you increase your income, it changes your tax bracket. If you usually receive the Earned Income Credit, a second job may make you ineligible for the benefit. This can happen if a stay-at-home spouse returns to work, as well. Your earnings increase, and so you should be okay over the year, but you will not want to plan on getting the same refund when you file your taxes, so if you rely on this money as a boost, you need to plan on not getting it. Additionally if you have signed up to receive the extra money in your paychecks, you will want to change your withholding form so that you do not end up owing a lot of money at the end of the year.
If you just purchased a home or had a child, this can change your financial picture and affect the amount that you need to have withheld in taxes or the amount that you need to pay quarterly.
If you started receiving dividends or you received a raise, you may also need to check to see if your situation has changed. It is a good idea to use the calculator anytime that your tax situation changes. You can also double check to make sure you are still on track with your taxes in August or September, which should give some time to start saving up additional money if needed.
Make the Most of Your Second Job
Working a second job can be tiring and stressful. It is likely not something that you want to do long-term. It is important that you use your extra money effectively to help you reach your financial goals. Make sure you are setting aside and off setting any costs that may increase because of your second job like eating out or increased childcare costs. If this is going to be a long-term situation, you may want to consider a career change or heading back to school so that you can take care of yourself.
It is difficult to survive if you are under-employed or do not make enough to live on.
You may find that the additional money is not as beneficial as you thought and may not be worth the additional stress. If you can manage to cover you basic expense with your full-time job, it may be better to tighten up on your spending instead of trying to juggle two jobs at the same time. If this is short-term to help you raise extra money to pay off debt or to turn your situation around it can be worth the sacrifice and time.