Moonlighting can cause headaches with income taxes because a second income directly affects your annual tax return. To avoid withholding too much in taxes during the year or not withholding enough, pay attention to the W-4 form you fill out with your employers. Acting as an independent contractor can expose you even more to this risk because you are required to track your own withholding. You may also be liable for self-employment taxes. Check with your tax adviser for guidance on self employment taxes and mandatory tax withholding.
W-4 Tax Withholding
Pay close attention to the W-4 tax withholding with each of your employers to see if enough taxes are being withheld. Increasing the withholding on your W-4 forms can help you avoid underpayment of taxes during the year. The taxes will be withheld from your regular paychecks and credited to you on your tax return when you file at the end of the year. The IRS has a withholding calculator available to help you calculate the amount to withhold. The information is based on your filing status, income and any deductions you plan to claim.
If you are an independent contractor, you will need to track and withhold taxes separately. A part-time independent contractor could be someone who is a freelance writer for a magazine. If the writer makes more than $400 in any year, she would receive a 1099 MISC form from the publisher. In addition to income tax, the writer would be responsible for paying self-employment taxes for Social Security and Medicare. An employer normally pays half of these taxes, but as an independent contractor you are responsible for the entire amount. Currently the total self-employment tax is 13.3 percent for the 2011 tax year.
Independent Contractors With More Than One Job
If you work as an independent contractor for two different companies and neither withholds taxes, you may be required to pay quarterly estimated taxes on IRS Form 1040 ES. The IRS states that a taxpayer must pay current year quarterly estimated tax if he expects to owe at least $1,000 in tax for the current year or if he expects his withholding and credits to be less than his projected tax owed. Check with your tax adviser to see if you are required to complete Form 1040 ES.
Freelancers With a Full-Time Job
If you have a full-time job and an independent contractor position as a part-time job, you have an advantage, because you already withhold taxes from a paycheck. If as a freelancer you expect to pay less than $1,000 in self-employment taxes for the year, the IRS states that you can adjust for this by increasing your W-4 withholding from your full-time employer.
- Photo Credit Ryan McVay/Photodisc/Getty Images Medioimages/Photodisc/Photodisc/Getty Images Comstock/Comstock/Getty Images
- List of Tax Deductions for Owner Operators
How to Do a Two Tone Paint Job on a Car
Painting a car one single color is a cinch compared to trying a two-tone color scheme. If you want to get fancy...
Self-Employment Taxes for a Second Job
Many workers hold onto their primary employment for the security of a regular paycheck or to maintain benefits while working as an...
Tax Deductions When Working Two Jobs
For workers who can't find full-time employment or need additional income to support their families, working two jobs can be a temporary...