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Part-Time Job Tax Withholding 101: A Guide for Gig Workers

Part-Time Job Tax Withholding 101: A Guide for Gig Workers
Ines Zemelman, EA
26 October 2021

Making money while working a part-time job need not be as rigorous as obtaining a full-time position. Although short-term and part-time jobs often seem simpler, planning for taxes including part-time job tax withholding that comes with them can be more complicated. As a result, if someone holds many jobs throughout the year, it will be more likely that incorrect taxes will be withheld from their paychecks. They may receive a timely tax refund, which may have helped them pay for expenses during the year (if it were withheld from their salary), or they might get hit with a big tax bill all at once, which they could have managed if it had been spread over a year. Surprises combined with taxes are rarely pleasant.

Definition of a Part-Time Worker

When it comes to federal income tax withholding, FUTA taxes, and social security and medicare taxes, part-time (and temporary) workers are treated the same way as full-time employees.

Part-time job tax withholding may be figured the same way as for full-time workers or it may be figured by the part-year employment method explained.

If an employer-employee relationship exists, it doesn't matter what it is called. The employee may be called an agent or independent contractor. It also doesn't matter how payments are measured or paid, what they’re called, or if the employee works full or part-time.

Part-Time Job Tax Withholding

W-4 forms help employers calculate the amount of tax to withhold from workers' paychecks so that they can avoid unpleasant surprises in the tax process. Workers should carefully fill out their W-4 forms in order to avoid unpleasant tax surprises. When they begin a job, workers are required to fill out a W-4, but they can make changes to it throughout the year.

It is possible to fill out the W-4 pretty easily, but the devil is in the details, or more specifically, the worksheet. You need to take the big picture into consideration if you have multiple jobs.

Digital marketers who tutor part-time over the summer could make a fraction of their annual income through their tutoring positions. A digital marketer's primary job isn't taken into account by tutoring companies or schools if his W-4 doesn't include the multiple job worksheet. Withholding standard amounts differ based on the income—for instance, for $100,000 of combined income withholding differs based on $25,000 of income. There is a possibility that the digital marketer will require more part-time job tax withholding from his employer or may choose to request a greater withholding amount.

Individuals who earn their only income during the summer have a different concern about an incorrect paycheck for part-time job tax withholding, but the solution remains the same. Their salaries over a full year can be low enough that they can eliminate withholding from their wages completely by filling out W-4 forms. Tax withholding is not required if they had no tax liability last year and have no expectation of having one this year. An income tax return would not be needed as a result if they were entitled to a refund of what they overpaid.

FAQs on Part Time Job Taxes

The Coronavirus pandemic has caused many Americans to lose their jobs, to be furloughed, or to be working fewer hours than usual, which makes side gigs all the more important. When it comes to understanding how a side gig or second job affects your taxes, it can be confusing for someone who hasn't worked a side hustle before. We'll examine a list of common questions about part-time job tax withholding.

Aside from your full-time job, did you work as a freelancer or independent contractor?

You are considered self-employed if you work as a freelancer, independent contractor, or in a side job for cash or for a fee. You owe tax on the income you receive on Schedule C (Form 1040), Sole Proprietorship, on your income tax return. There is no distinction among those who receive a Form 1099-MISC, a Form 1099-K, or cash or checks and must track their income by themselves. All income must be reported.

Do you have to file taxes for part-time jobs?

Yes and No. Part-time workers and teens whose annual income doesn't reach the IRS threshold aren't required to file a part-time job tax return, so the amount they make determines if they must file taxes or not. It may nonetheless be beneficial for teens to file a part-time job tax return even if it isn't necessary. 

Can I expect my taxes to be more complicated if I have self-employment income?

You will likely have more complicated federal tax returns overall if you generate self-employment income or side income during the year.  It does not have to be this way, though. Small businesses and self-employed individuals, including those who work part-time gigs, enjoy the most advantageous income tax rules of all tax rules. Many tax deductions, other special rules, and benefits contribute to lowering your tax burden as well as sometimes even creating an overall tax loss that offsets your regular income. Make sure to understand the rules so you can pay less tax.

Reducing Tax for Part-Time Workers

It is not unusual for people who cannot find full-time jobs to work part-time. Students or self-employed individuals may also choose part-time employment or work as an independent contractor. The following methods can help you reduce your taxable income and possibly receive a tax refund no matter what situation you are in.

Earned Income Tax Credit (EITC)

Lower-income workers can retain more of their income when they receive the earned income tax credit or EITC. Whether a person qualifies for the credit depends on their earning capacity, whether they file jointly or alone, and if they have children. Based on filing status and the number of eligible children, the maximum qualifying income in 2021 ranges between $21,430 and $57,414 per household. The requirements for eligibility are as follows:

  • It is essential that you possess a Social Security number
  • Citizenship and residency in the United States are required
  • Married individuals can't file separately
  • Working for someone, owning a business, or becoming self-employed is required
  • You must have less than the required income limit from earned income and investments

You can also check whether you qualify and for how much using the IRS' EITC eligibility assistant.

Premium Tax Credit (PTC)

Premium Tax Credit (PTC) helps eligible individuals or families to receive a refundable credit for the premiums for their health insurance bought from the Health Insurance Marketplace. If you qualify, you must file like the following:

  • Single
  • Widows or widowers who qualify
  • A household head, or
  • Jointly filed by married couples

The following must also be done:

  • Utilize the Marketplace for health insurance
  • Having an income that is within a certain range
  • Neither government nor employer health insurance coverage is available to you
  • No one can claim you as a dependent

To receive the credit, either wait until you file your income tax return or you can have it paid directly to your health insurance provider to help cover your premiums.

Taking Deductions for an Office at Home

Self-employed individuals, regardless of whether they work part-time, are able to deduct expenses that result from their activities including the use of an office from their home. You can claim a home business deduction if you include part of your home in your regular business operations, and your home must be the principal place where you conduct business.

Deductions for home offices are being closely examined by the IRS. It is important to document any home business deductions that you make. Accordingly, the IRS looks at how much of the space is used for business in your home and takes that into account when calculating the percentage of deductions that you can make. It is likely that you are able to deduct 15 percent of utility bills from your income if you use a part of your house as an office, which, for example, is equivalent to 15 percent of the building's total square footage.

Education Tax Credits

Part-time employees may work to pay their tuition and school costs. Or, they may be paying for children's college expenses. In order to offset school expenses, you can apply for two tax credits in connection with a part-time job.

Each eligible student can receive up to $2,500 in American Opportunity Credits. Tuition and books for the first four years of earning a degree are covered by this payment. Your refund depends on whether or not there is a credit amount left after you apply the credit to your tax bill. The credit amount cannot exceed $1,000. The American Opportunity Credit will pay back $1,000, if you owe $1,000 in IRS taxes and qualify for $2,000 in credit.

The Lifetime Learning Credit is the second education-related credit. Students can use it to pay tuition, books, supplies, and other costs associated with attending school. Each tax year, a taxpayer may claim up to $2,000 towards these expenses. Both parents and students cannot claim these credits at the same time. In other words, you cannot claim your educational credits if your parents paid for them.

Hire Tax Professionals

We recommend that you reach out to a professional tax accountant when you start working part-time to help you navigate through part-time job tax withholding, figure out your tax situation, and help file your tax return.

Ines Zemelman, EA
Founder of TFX