Many people work two jobs to pay the bills, earning extra taxable income, and accruing expenses they can write off at the end of the year. Depending on your situation, you may have an unpaid tax liability, penalties and fines, or you might be eligible for a refund. To make sure you file your taxes correctly, it's important to review how having two jobs affects your taxable income and qualifying business expenses.
Consider also: Non-Employee Compensation: Definition & Compensation Reporting
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Employee vs. Contractor
Before 2018, you could write off business-related expenses that weren't reimbursed by your employer. The Tax Cut and Jobs Act eliminated these write-offs. If you work a second job as a freelancer, contractor, gig worker or other self-employed person, you can claim these deductions. If so, you'll enter them on Schedule C of your 1040.
Travel For Your Second Job
In some cases, if you drive to your second job, you can deduct gas mileage for the trip. You can't do this if you work as an employee, and you can't do this if you work at the same location each shift – that's considered a commute. If you run errands, go to different locations (such as a tennis coach who teaches at a variety of parks and subdivisions) or visit clients, you can claim that mileage.
Consider also: Ordinary & Necessary Expenses Definition
You must keep a mileage journal in your car and record all of the mileage from your first job to your second job. Check the IRS mileage deduction each year and learn what it covers (e.g., gas, oil, tires, repairs, vehicle purchase or lease). The mileage rate for 2021 is 56 cents per mile, and it's 58.5 cents per mile for 2022.
Your maximum taxable earnings for Social Security is $142,800 in 2021 and $147,000 in 2022. If your second job takes you above that earnings amount, you have probably overpaid your Social Security tax. You can ask for a refund when you file your tax return.
If your two employers operate their businesses without knowing your withholding limits, they both will have deducted Social Security tax and paid it to the government on your behalf. The income limit is not per job; it is per taxpayer. You will have a refund coming on any withholding on amounts above your maximum taxable earnings.
Higher Tax Bracket
If you worry that your extra earnings will put you in a higher tax bracket, you may be right. However, that may not be as bad as you think. When you reach the higher tax bracket, only the earnings that put you in the new bracket incur the higher rate. Your earnings below the bracket line are taxed at a lower rate.
Check your federal and state tax brackets to see where your income from your second job will put you. If your extra income puts you in a higher tax bracket, calculate what your higher taxes will be and subtract that from your extra income.
Factor in how much you will reduce your taxable income with business-related tax write-offs. This will tell you if your second job is worth it, in terms of the financial benefit you are receiving for the effort you're putting in.
An added benefit of your second job is you will eventually receive higher Social Security benefits. Because you earn extra, you contribute more. This will pay off in your retirement years because you will receive higher payments from the Social Security Administration.
If you work year-round as a contractor, talk to a tax professional to see if you are required to pay quarterly estimated taxes. If you are and you don't pay these taxes every three months, you might incur a penalty and interest on your unpaid liability.