In today’s world, technology has made it easier than ever to pursue gig work, side hustles, and contract jobs. A teacher might sell delicious cookies at a local farmer’s market, an accountant could offer tax consulting services on the side, or a computer programmer might deliver pizzas part-time.
While juggling multiple jobs can be a balancing act, it also comes with unique tax considerations that can impact your financial situation. Whether you’re seeking extra income, managing part-time roles, or simply working multiple jobs to make ends meet, understanding the tax implications is crucial for effectively managing your finances. In this article, we’ll delve into the key tax considerations for individuals holding multiple jobs and provide practical tips for navigating this complex landscape.
Will I Get in Trouble for Holding Two Jobs?
Holding two jobs is generally legal and not inherently problematic from a legal perspective. However, if you have an employment contract with either of your employers, it’s essential to review the terms carefully. Some contracts may include clauses that restrict your ability to work for other employers, especially if there is a conflict of interest or if the additional work interferes with your performance in your primary job. If your two jobs are in related industries or if there is a potential conflict of interest between them, transparency with both employers is essential to ensure compliance with company policies and ethical guidelines.
How Much More Taxes Will I Have to Pay by Holding Two Jobs?
If all’s good, the only downside is probably having to pay higher taxes, since you’d be earning more. The IRS publishes this guideline:
Tax tables for tax year 2023:
- 35% for incomes over $231,250 ($462,500 for married couples filing jointly);
- 32% for incomes over $182,100 ($364,200 for married couples filing jointly);
- 24% for incomes over $95,375 ($190,750 for married couples filing jointly);
- 22% for incomes over $44,725 ($89,450 for married couples filing jointly);
- 12% for incomes over $11,000 ($22,000 for married couples filing jointly).
Tax tables for tax year 2024:
35% for incomes over $243,725 ($487,450 for married couples filing jointly)
32% for incomes over $191,950 ($383,900 for married couples filing jointly)
24% for incomes over $100,525 ($201,050 for married couples filing jointly)
22% for incomes over $47,150 ($94,300 for married couples filing jointly)
12% for incomes over $11,600 ($23,200 for married couples filing jointly)
What does this mean? It means that if you’re single and making $50,000, you’re already in the 22% tax bracket. Guess what? If you’re making $25,000 from your second job, you’re still going to be in the 22% tax bracket.
Here’s food for thought: Even if your multiple jobs net you $120,000 and push you to the 24% tax bracket, only $19,475 ($120,000 – $100,525) will be taxable at 24%.
All in all, our two cents is to focus on the 78% take home income, not the 22% tax.
Understanding Tax Withholding:
When you’re rocking multiple jobs, each employer takes out taxes from your paycheck using the info from your Form W-4. But since they do it separately, you might not have enough taken out, especially if all your jobs add up to a higher tax bracket.
To dodge penalties and a hefty tax bill later, think about tweaking your Form W-4. That way, you can make sure enough gets taken out to cover your taxes from all your gigs.
Tracking Deductions and Credits:
Managing multiple jobs can also affect the tax perks you can snag. Let’s say you’re doing your own thing in one job, but you’re also getting a W-2 from another gig. In that case, you could deduct expenses tied to your self-employment income. Plus, when you combine your earnings from all your jobs, you might hit the sweet spot for tax credits like the Earned Income Tax Credit (EITC).
Keeping detailed records of what you make and spend for each job is key to getting all the tax breaks you deserve. Using accounting software or getting a hand from a tax pro can make sure you’re not missing out on any benefits while keeping everything IRS-friendly.
Retirement Savings and Benefits:
Another thing to think about for folks with multiple jobs is retirement savings. If you can join a retirement plan like a 401(k) or 403(b) at each job, you might be able to put money into more than one plan, which could help you save more for your retirement.
Also, if you’re eligible for benefits like health insurance or commuter benefits from your jobs, take a close look at what each job offers. You might be able to get the most out of your coverage and save some money by choosing wisely.
Can I Contribute to Two Companies’ Retirement Plans?
The short answer is yes, with some considerations. For tax year 2023, the maximum amount individuals can contribute to their 401(k) plans in 2024 is $23,000. This amount doesn’t include employer’s matching contributions. The maximum amount for the combined employee and employer contributions is $69,000. If you’re age 50 or older, you’re eligible for an additional $7,500 in catch-up contributions, raising your employee contribution limit to $30,500.
401(k) contribution limits
| Pretax and roth employee contributions | Employee and employer contributions | Catch-up contributions (in addition to the employee and employer limit) | |
|---|---|---|---|
| 401(k) contribution limit for 2023 | $22,500 | $66,000 | $7,500 |
| 401(k) contribution limit for 2024 | $23,000 | $69,000 | $7,500 |
Can You Give Me an Example of Matching 401k Contributions from Two Jobs?
Absolutely. Let’s say you are under 50 years old and earn $100,000 per year at Job 1. You contribute 6% of your salary, or $6,000, your employer will match and contribute half of that, or $3,000.
At your Job 2, you also contribute 6% of your salary, or $6,000. Your company will match $4,000.
Your total contribution is $6,000 + $6,000 = $12,000. You still have $11,000 ($23,000 limit for 2024 – $12,000) to contribute before you hit the limit of $23,000.
Your total employer contribution is $3,000 + $4,000 = $7,000. You still have $50,000 ($69,000 limit for 2024 – $12,000 – $7,000) total annual contribution limit available before you hit the limit of $69,000.
It’s up to you how you’d contribute to get the highest matching contribution possible, just be sure not to exceed these limits.
What If I Exceed the 401k Contribution Limits?
If your employers offer matching contributions, that’s great! But remember, they won’t coordinate your 401k contributions for you, especially if you’re working multiple jobs. It’s up to you to make sure you don’t put in too much. If you realize you’ve overcontributed, reach out to your retirement plan administrator right away. They’ll need to fix things by giving you back the extra money (called a “corrective distribution”) and any extra earnings it might have made. They’ll also sort out the paperwork to correct the overcontribution. This process can take a bit, so it’s best to act fast.
The excess contribution will be added to your total taxable income for the year, so you’ll get a new W-2 form reflecting the change. When you file your taxes, make sure to use this corrected W-2, not the original one. If you think you’ll be filing late, consider filing for an extension and paying estimated taxes to avoid any penalties. Then, when you have the correct W-2, you can file your taxes accurately.
Can You Advise Me Some Tax Planning Strategies?
Here are some friendly tips to help you manage your taxes when you have multiple jobs:
- Check your total income from all jobs to figure out your tax bracket and what you might owe in taxes.
- Make sure you adjust your withholding allowances on Form W-4 so that enough taxes are taken out of each paycheck.
- Keep really good records of what you earn, spend, and any tax-related papers for each job.
- See if you can use any tax deductions or credits that fit your situation, like the EITC or business expenses if you’re self-employed.
- It could be a good idea to talk with a tax professional. They can help you come up with a plan that fits your specific situation and keeps your taxes in check.
Will Two Jobs Withheld the Correct Amount of Social Security Payments?
For tax year 2023, you’ll have excess Social Security withholdings if the sum of multiple employers’ withholdings exceeds $9,932.40 (6.2% x $160,200) per taxpayer.
For tax year 2024, you’ll have excess Social Security withholdings if the sum of multiple employers’ withholdings exceeds $10,453.20 (6.2% x $168,600) per taxpayer.
Most tax softwares will automatically calculate any excess and subtract it from owed federal taxes, or add to your federal tax refund, whichever applies. That’s one less thing to worry about, thanks to technology.
Wrap-Up:
Managing taxes when you have multiple jobs takes some careful thought and attention to detail. When you know how each job affects your taxes, you can make smart choices to pay less and keep more for yourself. Whether you’re a freelancer with lots of projects or just working part-time to make ends meet, staying on track with taxes is key to staying financially healthy.