If you have a second income from a part-time job you need to pay special attention to its effects on your federal income tax return, even though employers deduct tax withholding from checks you receive. Those moonlighting as an independent contractor are responsible for watching their own tax withholding and in addition may also be liable for self employment taxes if income exceeds a certain threshold. Check with your tax adviser for guidance on self employment taxes and mandatory tax withholding.
Tax Witholding for a Part-Time Job
If you receive income from a part-time job, you should pay attention to your W-4 tax withholding with your part-time employer to ensure enough taxes are being withheld. Increasing the withholding on your W-4 can help you avoid underpayment of taxes during the year and having a large balance due when you file your return. The taxes will be reduced from your regular paycheck and credited to you on your tax return when you file.
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Independent Contractor Status
Some part-time jobs classify you as an independent contractor. If this is the case you will need to track and pay taxes separately. An example of a part-time independent contractor would be someone who is a direct commission seller of consumer goods. If the independent contractor makes more than $400 in a year they would receive a 1099 MISC form from the company that includes all sales commissions. The independent contractor would be responsible for paying employment taxes, which are for social security and medicare, in addition to the regular income tax rate. Currently the self-employment tax is 13.3 percent for the 2011 tax year.
Independent Contractor Tax Withholding Strategies
Those considered an independent contractor in their part-time jobs have an advantage if they already withhold taxes from their paycheck with their full-time employer. If independent contractors expect to pay less than $1,000 in self-employment taxes at the end of the year, the Internal Revenue Service states an independent contractor can increase their W-4 withholding from their regular employer in order to meet the quarterly withholding requirement for self-employed individuals.
Quarterly Withholding for Independent Contractors
If an independent contractor does not have an employer that withholds taxes, they may be required to pay quarterly estimated taxes on IRS Form 1040 ES. For those in this situation, the IRS states that a taxpayer must pay current year quarterly estimated tax if they expect to owe at least $1,000 in tax for the current year, or if they expect their withholding and credits to be less than their projected tax owed. Check with your tax adviser to see if you are required to complete Form 1040 ES.