How Does a Second Job Affect Your Taxes?

Earning money from a second job can provide financial relief or help you reach savings goals faster, but it also comes with tax implications that many overlook. Additional income may change how much you owe at tax time and could require adjustments to your withholding or estimated payments.

Understanding how a second job affects your taxes can help you avoid surprises and ensure you’re setting aside enough to cover what you owe.

Additional Income and Tax Rate

Earning money from a second job increases your total taxable income, which may push you into a higher tax bracket. The U.S. tax system is progressive, meaning only the portion of your income that exceeds a bracket threshold is taxed at the higher rate—not your entire income.

For example, in 2024, federal tax brackets for single filers range from 10% on income up to $11,600 to 37% on income over $609,350. If your primary job pays $50,000 annually and your second job adds $15,000, your total taxable income becomes $65,000. This places you in the 22% bracket, but only the portion above $47,150 is taxed at that rate. The rest is taxed at lower rates.

State taxes also play a role. Some states, like California, have multiple tax brackets, meaning even a modest increase in earnings can result in a higher state tax rate. Others, such as Texas and Florida, do not impose state income tax, so your second job’s impact is limited to federal obligations.

Withholding Adjustments

When working a second job, the amount withheld from your paycheck may not accurately reflect your total tax liability. Employers calculate withholding based only on the income they pay you, without considering earnings from another source. This can lead to under-withholding, resulting in a tax bill when you file, or over-withholding, meaning you’re giving the IRS more than necessary throughout the year.

To avoid surprises, update your Form W-4 with each employer. The IRS provides a Tax Withholding Estimator to help determine the correct amount to withhold based on your combined income. If your second job pays significantly less than your primary job, you might opt to have additional tax withheld from your main paycheck instead of adjusting both.

For those earning non-wage income, such as freelance work or contract-based earnings, withholding isn’t automatic. Instead, estimated tax payments may be necessary. The IRS requires these payments quarterly if you expect to owe at least $1,000 beyond what’s withheld from wages. Failing to pay enough throughout the year can result in underpayment penalties, calculated based on the federal short-term interest rate plus 3%.

Worker Status Options for a Second Job

The way your second job is classified affects how taxes are handled, including how income is reported and what deductions you may be eligible for. Employers categorize workers as either W-2 employees or independent contractors, while some individuals operate as self-employed. Each classification has different tax implications.

W-2 Employee

If your second job is as a W-2 employee, your employer withholds federal and state income taxes, as well as Social Security and Medicare taxes (FICA). The standard FICA tax rate is 7.65%—6.2% for Social Security and 1.45% for Medicare. If your combined wages from both jobs exceed $200,000 as a single filer ($250,000 for married couples filing jointly), an additional 0.9% Medicare surtax applies.

Employers do not coordinate withholding across multiple jobs, which can lead to overpayment of Social Security taxes. The annual Social Security wage base limit for 2024 is $168,600, meaning any earnings above this threshold are not subject to the 6.2% Social Security tax. If both employers withhold Social Security taxes on wages exceeding this limit, you can claim a refund for the excess amount when filing your tax return using Form 1040, Schedule 3.

1099 Contractor

Independent contractors receive a Form 1099-NEC instead of a W-2, meaning no taxes are withheld from their earnings. Instead, they are responsible for paying self-employment tax, which covers both the employee and employer portions of Social Security and Medicare. The self-employment tax rate is 15.3%—12.4% for Social Security (on income up to $168,600) and 2.9% for Medicare. If net earnings exceed $200,000 ($250,000 for married couples filing jointly), the additional 0.9% Medicare surtax applies.

Since taxes are not withheld automatically, estimated tax payments must be made quarterly using Form 1040-ES. The IRS requires these payments if you expect to owe at least $1,000 beyond what is withheld from other income sources. Failure to make sufficient payments can result in underpayment penalties. Keeping detailed records of income and expenses is essential, as contractors can deduct business-related costs such as home office expenses, mileage, and equipment purchases, reducing taxable income.

Self-Employed

Those who operate their own business as a second source of income must report earnings on Schedule C of Form 1040. Like independent contractors, self-employed individuals pay self-employment tax at a rate of 15.3%, with the same Social Security wage base and Medicare surtax thresholds. However, they can deduct the employer-equivalent portion of self-employment tax—half of the 15.3%—as an adjustment to income.

Self-employed individuals can also take advantage of additional deductions not available to W-2 employees or contractors. These include the home office deduction, which allows a portion of rent, utilities, and internet costs to be deducted if a dedicated workspace is used exclusively for business. Retirement contributions to a SEP IRA or Solo 401(k) can further reduce taxable income, with contribution limits of up to 25% of net earnings or $69,000 for a SEP IRA in 2024. Proper bookkeeping is essential, as the IRS requires accurate records to substantiate deductions.

Combined Income Reporting

All earnings must be reported on your tax return, even if each employer only considers their portion when calculating withholdings. The IRS requires individuals to aggregate all sources of taxable income, including wages, freelance earnings, and self-employment profits, to determine total tax liability. Misreporting or omitting income can trigger audits and penalties under Internal Revenue Code 6662, which imposes a 20% accuracy-related penalty on underpayments resulting from negligence or substantial understatement.

Form 1040 serves as the primary document for reporting total earnings, with supplementary schedules depending on the nature of the income. W-2 wages are entered on line 1, while independent contractor or self-employed income is reported on Schedule C, factoring in allowable business expenses. If additional sources such as rental income, dividends, or capital gains exist, they must also be included on the appropriate schedules. The IRS uses automated matching programs to compare reported earnings against employer-submitted W-2s and 1099s, flagging discrepancies that may result in notices or audits.

Itemizing Deductions and Credits

Taking on a second job can affect eligibility for certain deductions and credits, which may reduce overall tax liability. Whether you benefit from itemizing or taking the standard deduction depends on total expenses. For 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If deductible expenses exceed these amounts, itemizing may be more advantageous.

Common itemized deductions include mortgage interest, state and local taxes (SALT), medical expenses exceeding 7.5% of adjusted gross income, and charitable contributions. However, earning more from a second job may limit certain deductions due to income phaseouts. The SALT deduction is capped at $10,000, and medical expense deductions become harder to claim as earnings increase. Additionally, tax credits such as the Earned Income Tax Credit (EITC) phase out as income rises.

Keeping Track of Your Earnings

Maintaining accurate records is essential when working multiple jobs. Tracking income from W-2 employment is straightforward since employers provide annual wage statements, but independent contractors and self-employed individuals must keep detailed records of payments received.

For those earning non-wage income, maintaining receipts, invoices, and bank statements is necessary to substantiate earnings and deductions. The IRS requires self-employed individuals to keep records for at least three years in case of an audit. Tracking estimated tax payments is also important to avoid underpayment penalties. Keeping organized financial records simplifies tax filing and ensures compliance with IRS regulations.