Working a seasonal job–such as during the summer or over the holiday retail season–is a great way to pick up some extra cash and to get ahead on expenses. At the same time, there are some tax implications that you’ll need to be aware of so you won’t experience any “sticker shock” during tax season and the possibility of tax penalties.
If you work in a service profession as either a seasonal job or regular side gig, be sure to record your tips. You’ll need to report those tips as part of gross income for the tax year. Be sure to keep track of them yourself with either a bookkeeping app or a spreadsheet program such as Excel; your boss may not always keep accurate records of their employees’ tips.
If you plan on working more than one seasonal job, you could be dealing with increased tax liability at the end of the year since the IRS requires you to account for all earned income. Make sure each employer deducts the correct amount of withholding based on your filing status and allowance amount. Take a close look at your pay stub each pay period and follow up with payroll or accounting if you have any concerns.
If you pick up a seasonal gig as an independent contractor, you could run up against self-employment taxes. Generally, if you earn $400.00 or more from self-employment, you will need to pay self-employment tax.
You can calculate this tax by using Schedule SE and attaching it to your tax return.
Whenever you take on a side job, it pays to have a solid understanding of tax withholding as it applies to your unique situation. You may end up having local taxes deducted, in addition to the customary payroll deductions: state income tax, Social Security tax and Medicare tax (shown on your pay stub as FICA). Take the time to read your first pay stub closely so you’ll know what you are in for in terms of your overall withholding.
Taking on a seasonal side job is a great way to pick up some extra cash. A little due diligence will go a long way in understanding your full tax liability and the impact of the extra income on your gross earnings for the year.
Keep a thorough record of any tip income, and take a close look at your pay stubs to get a clearer picture of just how much is being withheld, and if the correct amount is being withheld. If you work as an independent contractor and earn $400.00 or more, you will need to pay self-employment tax at the end of the year.
By fully understanding the changes in your overall tax scenario brought about by a second job or seasonal gig, you can prepare for any additional tax liability instead of getting an unwelcome shock at the end of the year. Be informed, read your paystubs, and you’ll be able to enjoy the true benefit of a side job: extra cash in your pockets.
