Second Job or Part-Time Work & Federal Income Tax: Understanding Your W-2 and Pay Statement

It's important to remember that the IRS requires taxes to be paid on income earned from any source, including income from a second job or part-time work. If you have done any side work in the past year or are currently doing so, it's essential to understand how this may affect your income taxes. 

Second Job or Part-Time Work & Federal Income Tax Understanding Your W-2 and Pay Statement

Why There Might Be No Federal Income Taxes on Your W-2:

Sometimes, there are no withholdings on the income earned through a part-time second job. This is true for many gig workers, who are usually hired as independent contractors. As independent contractors, they are responsible for paying their own taxes. At the end of the year, they receive 1099s, which usually do not have any withholdings.

For part-time employees receiving a W-2, particularly those earning lower wages, it's not uncommon to find little to no federal income tax withheld from their paychecks. This situation can arise for several reasons:

  • Lower Income Thresholds: Part-time or second jobs often pay less, potentially placing workers below the income threshold required for federal income tax withholding. This doesn't exempt individuals from tax obligations; rather, it means that their withholdings might not be automatically deducted at the source.

  • Incorrect Withholding Setup: If the W-4 form filled out at the start of employment wasn't accurately completed, it could lead to insufficient withholding. This form controls how much tax is withheld from your paycheck, and errors or mismatches in allowances and status can affect the outcome.

To mitigate potential issues, part-time workers should:

  • Review and Adjust W-4 Forms: Ensure that your W-4 form at each job reflects your total income accurately. This might involve adjusting allowances or opting for additional withholding to cover potential tax liabilities.

  • Set Aside Money for Taxes: If your withholdings are insufficient, setting aside a portion of each paycheck for taxes can help avoid surprises come tax season.

Tax Implications of Working Multiple Jobs

If you have multiple jobs, your withholdings may not be enough to cover your year-end tax liability. This happens because your withholdings are usually set up based on a single job's income, which may not reflect your total income.

The two reasons for discrepancies in tax withholdings are: First, if your second income is much lower than your primary job's income, you probably won't have enough taxes withheld from your second income. Second, your primary income may also not have enough taxes withheld because many people do not update their primary job's withholdings when taking on a second job.

Understanding Your Pay Statement and W-2

You can find out how much is being withheld from a job’s income by checking your most recent pay statement or year-end W-2.

The W-2, or Wage and Tax Statement, is a year-end document that outlines your annual earnings and the taxes withheld. Pay statements, or pay stubs, offer a breakdown of each pay period's earnings and deductions, including federal income tax.

W-2 Explanation

You'll see multiple boxes if you receive a W-2 from your second job or part-time work. Initially, the document can look complex, but each box is clearly numbered and labeled. Here's a W-2 explanation of the various boxes:

  • Basic employee and employer information (Boxes A-E)
  • Taxable income for each listed tax (Boxes 1, 3, 5)
  • Taxes withheld for each listed tax (Boxes 2, 4, 6; usually next to income boxes)
  • Tip income (Boxes 7-8)
  • Verification code (Box 9)
  • Various benefits and distributions (Boxes 10-11)
  • Other income/codes (Boxes 12; usually multiple-lettered boxes)
  • Miscellaneous (Boxes 13-14)
  • State and local (Boxes 15-20)

Boxes 1-6 are most relevant to check your federal tax withholdings.

Part-Time Income Tax

Because part-time income can be much lower than full-time income, the amount withheld from part-time paychecks is often substantially less.

The difference between what's held and what's owed can vary depending on your total income and the amount made from your part-time work. The discrepancy will probably be larger if there’s a larger difference between the two incomes. Even a small difference between part-time income tax and what's owed can be an issue.

Managing Tax Obligations with Multiple Income Sources

You can successfully avoid year-end tax problems by taking just a few steps to manage your withholdings throughout the year effectively. You can:

  • Make sure your second (or third) job’s withholdings are properly set up
  • Make sure your primary job’s withholdings are adjusted when taking on additional work
  • Set aside a portion of each paycheck for additional, unexpected tax liabilities.

    Human resources or your supervisor can help check and set up withholdings. This is done by filling out a W-4 form.

Stay On Top and In Compliance
It's crucial to understand the federal income tax implications of working a second job or part-time, to plan your finances effectively and avoid any unforeseen tax liabilities.

Stay on top of your tax and reporting obligations this year. Contact Workforce PayHub to streamline your tax reporting process with our expert payroll services. Subscribe to our newsletter for more tax tips and updates on payroll processing throughout the year. 

Eric Jones
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