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Do I Have to Claim Second Job on Taxes?

Do I Have to Claim Second Job on Taxes?
Ines Zemelman, EA
27 October 2021

Most people who take on a second job do so to help pay off debt or reach some other financial milestone. When it comes to paying taxes, the last thing on your mind probably is how much that new job will increase your annual tax burden.

TFX has compiled the following information to assist you in preparing your taxes. Examining important payment thresholds, reporting questions, and penalties for failing to report all of your income is important.

How Does a Second Job Affect Tax?

You need to get a better understanding of how your taxes are affected by various job types, such as traditional wage work and freelancing.

Traditional Second Job:

Traditional second jobs pay a regular salary or hourly wage for your time and effort. This means you'll get a W-2 at tax time and be asked to complete a W-4 with your withholding details. It's easy to claim zero on your second paycheck if you already have a job where your employer deducts taxes.

Freelance Work:

Freelancers and other independent contractors will find things a little more challenging if they work independently. The estimated tax payments in this situation are all on your shoulders. It won't be your employer withholding taxes from your paycheck and remitting the funds to the government.

Each quarter, you'll have to make an estimated payment toward your tax liability. A tax calculator or a conversation with your accountant can help you determine the amount of additional income that is taxable and should be sent to the Internal Revenue Service (IRS). The IRS Form 1040-ES can be used to figure out how much you owe and how much you need to remit.

Do You Have to Claim Second Job on Taxes?

No matter if you're working as an employee or an independent contractor, the tax authority expects you to report all of your income. If you make less than $600 a year, your employer is not required to report your wages to the IRS. However, you are still required to do so on your tax return if you receive them.

When it comes to self-employment income, the IRS maintains that it's a common misunderstanding that the income isn't taxable if a taxpayer doesn't receive Form 1099-MISC or if the income per payer is less than $600. IRS further states that all self-employment income is fully taxable and must be reported on Form 1040. This is true whether it is from the taxpayer's business, as an independent contractor, or from informal side jobs.

IRS recommends using Form 1040, Profit or Loss from Business, Schedule CEZ, or Net Profit from Business to report income and expenses. If a taxpayer's net profit exceeds $400 in a year, they must also complete Form 1040 Schedule SE for self-employment taxes. You should not include this income on your tax return as Other Income on Line 21 of Form 1040.

How Does Second Job Tax Work?

If you're a freelancer or contractor in the gig economy, you may have received payments totaling more than $600 from a side job during the tax year. Any individual or business who compensated you generally needs to provide you with a Form 1099-NEC for nonemployee compensation, if applicable. Payers will use this form to report their earnings to the IRS.

Employers should send you 1099 forms detailing your earnings and any deductions they made from your paychecks by January 31. Even if you do not get this form, you still need to report your earnings.

The payer doesn't have to send you a 1099 form if you made less than $600 from a side gig, but you still have to report the money. Since second jobs can bring in extra income, it's important to report it to the IRS. There are penalties and fines for not complying with this. This is applicable even if you received cash payments in exchange for services.

What Happens if You Do Not Report Non-employee Compensation?

Form 1099-NEC reports your nonemployee compensation; if you don't report it on your taxes, you may be penalized. If you fail to report this income on your 1040 tax form, you will underreport your income and your tax obligation.

The IRS may levy a penalty equivalent to 20% of your tax underpayment if this occurs and the IRS determines that your tax liability was substantively underreported. If the underreported tax liability is greater than 10% of the correct tax or $5,000 for individuals, the IRS considers the understatement substantial. Furthermore, if the IRS discovers evidence of unreported cash payments made to you, this accuracy-related penalty may also apply to those payments.

To Sum Up

Your second job is for extra income and not for stress. However, when it comes to second job taxes, they can get complicated and may result in penalties if you do not report them to the IRS. Whether you receive a Form 1099-NEC or not, you still need to report your income to the IRS. Contacting tax experts is the best option. TFX can answer your questions about second job taxes and help you report your income from a side job without getting into trouble with the authorities. 

Ines Zemelman, EA
Founder of TFX