2 jobs in one year tax return

Whether you’re a life-long side-gigger or a first-timer, here’s everything you need to know about how a second job or side gig affects your taxes.

Did you do additional work as a freelancer or independent contractor?

If you work as a freelancer, independent contractor, for cash, or in a side gig you are considered self-employed and must include the income on a Schedule C, Sole Proprietor, on your tax return. Whether you get a Form 1099-MISC, Form 1099-K, or just cash or checks and have to track the income yourself, you must claim all of your income.

What if I have multiple W-2 forms?

Make sure you don’t pay too much in Social Security taxes. There is a maximum amount of Social Security taxes you have to pay each year. If you work for one employer, they will stop withholding your Social Security taxes once you reach that point. The maximum Social Security earnings this year is $137,700, and your maximum Social Security taxes are $8,537.40. If you worked for one employer and paid too much, you must contact your employer for a refund of the overpayment.  If you work for more than one employer, you can claim any excess Social Security taxes paid when you file your tax return.

Will working a second job affect my taxes?

Anytime you increase your income, you have the potential of increasing your taxes. Make sure you are withholding the right amount to cover your taxes, particularly if this is your first time having a second job or side gig as a result of Coronavirus. If you are self-employed, make sure you are keeping receipts of all your expenses as well as a journal of all the miles you are driving for your job.

If I earned less than $400 from my second job, do I have to claim it?

You must claim all the income you earn from any job. If you are/were an employee for someone during the year, they must issue you a W-2 reporting your wages, Social Security, and Medicare taxes withheld, and any federal and state income taxes withheld. If you are working as an independent contractor, have a side gig, or are starting your own business, keep track of your income and expenses and report them on your tax return.

If I have self-employment income (full or part time or little or a lot), will my taxes be more complicated?

Well, the short answer is YES. If you have self employed or side income during the year, your taxes overall will be more complicated both federal and likely state too.  However, there is good news. The tax rules for small business and self employed including even part time gig income are some of the best and most beneficial of all tax rules. There are benefits, tax deductions, special rules and a lot more that can reduce your taxable income and even sometimes create an overall tax loss and offset your regular income. Know the rules and pay less taxes.

Changing jobs is very common among individuals. People tend to change jobs for a better pay scale or to acquire new skills, and when you do this within a financial year (FY), you will have more than one Form 16. This may lead to confusion that whether your income taxes are in order or not.

Here’s is the solution to the queries arising, if you changed jobs during the year:

Inform your current employer about the previous employment

There are several individuals who do not inform their new employer about their previous salary structure. As a result, the new employer calculates income tax based on the income earned from him in the FY. This will lead to a miscalculation of taxes for the financial year.

For instance, Mr Raj has left ABC company in December 2019 and joined a new company, XYZ in January 2020. He has not informed his previous salary to XYZ. He earned Rs 6.5 lakh from the previous employment and Rs 2.4 lakh from XYZ. Now that he has not informed XYZ about Rs 6.5 lakh, they will calculate his tax based on Rs 2.4 lakh only. Now, according to XYZ, Mr Raj will not pay tax during the same year as his income is below the basic exemption limit of Rs 2.5 lakh. But, he will have to pay taxes on Rs 9 lakh (Rs 6.5 + Rs 2.4 lakh) along with a penalty while filing his income tax returns. To avoid this miscalculation of taxes, you should declare your previous salary to your new employer as soon as you join the company.

Include information of every employer in your tax return

Make sure you receive your Form 16 from all the employers you have worked in a particular FY. Form 16 is the most vital document you will need to file your income tax returns. Details such as PAN of the employer, TAN of the employer, name and address must be reported for each employer in your tax return. ClearTax allows you to upload multiple Form 16s and file your tax returns accurately.

Consolidate salary from all employers

You will have to consolidate the salary earned from all the employers while filing your tax returns. In case you miss reporting any such salary, the department might send you a notice about the non-reporting of income. Remember your salary is always taxable irrespective of whether TDS is deducted or not, so include this amount in your return.

Adjusting exempt allowances

Usually, with every job change, the salary structure changes. This also leads to changes in your allowances such as house rent allowance (HRA). Do remember to claim HRA exemption from all your employers. You just have to submit the rent receipts, in case you live in a rented apartment. If you have missed submitting rent receipts to your employers on time, you can claim HRA while filing your income tax returns also. In such a case, you will have to recalculate your HRA exemption for the entire year, adjust your salary accordingly and get a refund if excess tax was deducted.

Claim all the tax deductions

The employers usually begin the exercise of collecting proof of tax-saving deductions around February or March every year. Many individuals quit their job before this period and the employers fail to provide them with the benefit of various deductions. Don’t worry. Once you have consolidated your income earned during the financial year from various employers, you will have to sum up your deductions, in case you have invested in tax-saving avenues.

You can claim the deductions under Section 80C, 80G, 80D and so on while filing your income tax returns. Just remember to safely keep the proofs for future reference. Keep in mind that deductions are allowed against your total income earned in an FY, so the benefit of the deduction for tax calculation must be taken only once for a year.

Check your Form 26AS

Form 26AS is the tax credit statement which consists of details of TDS by various deductors. A salaried individual can get the details of his salary credited every month and tax deducted thereon from each employer in the Form 26AS. This form is very important for filing your income tax returns as you can take the credit of all the tax deducted against your total tax dues in a financial year. One must always cross-check the TDS entries appearing in the Form 26AS with his payslips or bank statements. In case of any mismatch in the entries, he must report the same to his employer and resolve it before filing the tax returns.

Check your tax due

When your salary income from different employers is aggregated, there are chances that you might see a tax due. Why does this happen? If your new employer does not know how much you earned from your previous job, his tax computation may be inaccurate. Generally, the basic exemption limit and standard deduction may be allowed by all your employers. The benefit of tax-saving deductions might be allowed by more than one employer while calculating tax. Also, it may happen that after summing up all your salary income, your income tax slab may have gone up.

For instance, Mr Kumar has left ABC company in December 2019 and joined a new company, XYZ in January 2020. He has not informed his previous salary to XYZ. He earned Rs 9.5 lakh from the previous employment and Rs 2.4 lakh from XYZ. According to his previous salary, his salary was under the tax slab of 20%. After summing up the salaries from both the employers, the tax slab has been moved to 30%. This situation will lead to a tax due for Mr Kumar while filing his return.

So, it’s prudent to recheck all the salary details from different employers and pay the tax due before submitting income tax returns.