Many people work two jobs to pay the bills, but they may be overpaying the tax bill. If you have been moonlighting, both of your employees have been withholding Social Security, and you may be eligible for a refund. In addition, you may have overlooked an important income tax deduction you can receive for having a second job. You must examine the tax breaks available to you to see if you have a refund coming.
Transportation to Your Second Job
According to the Wall Street Journal, if you drive to your second job (even if it's for the same employer), you can deduct gas mileage for the trip. You must keep a mileage journal in your car and record all of the mileage from your first job to your second job. Claim this mileage as an expense on Internal Revenue Service Form 2106. You cannot claim the mileage for driving home from your second job, and you can't claim mileage for driving to your first job.
Excess Social Security Payments
Your maximum taxable earnings for Social Security is $106,500. 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. Since your two employers operate their businesses without knowing your withholding limits, they both will have held out 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. Example: you will pay 10 percent on the first $8,500, 15 percent from there up to $34,500, and 25 percent on earnings above that up to $83,600. If your second job puts you in the next bracket, which is the 28 percent bracket, you will only pay 28 percent on that portion of income that is over $83,600. Keep in mind, these income levels are for taxable income — after you have taken off deductions.
Increased Social Security Benefits
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.
- The Wall Street Journal; Two Jobs? Don't Overpay Social Security; Herman; April 2007
- Consultant Journal: Second Job Tax Deductions; July 2007
- Main St; Daily Deduction; Transportation to a Second Job; McFarland
- Social Security Administration; 2011 Social Security Tax Rate and Maximum Taxable Earnings; September 2011
- IRS.gov: Form 2106; Employee Business Expenses
- Tax Brackets 2011