I’m a Tax Expert: 4 Things To Watch For When You Earn From Multiple Employers
This year, you didn’t just work hard for one employer; you were a side-hustling machine for multiple companies. Industrious should be your middle name (though please don’t change your birth certificate). Now one question remains: What should you watch for with your taxes?
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Whether you’re creating a patchwork of income through several different employers or maintaining a day job and working for a client on the side, earning money through multiple outlets can have important tax implications if you don’t know what to look for.
Fortunately, MoneyLion talked to someone who does: David Kang, a taxation advisor and founder of Keeper Tax.
Make Sure You Don’t Withhold Too Little
When you’re juggling multiple gigs at once, you’re vulnerable to having too little federal income tax taken out. Kang says this problem is especially common for people whose income sources vary widely.
Here’s the rub: When you have multiple jobs, each employer generally calculates your withholding as if it’s your only source of income. Oops.
“It’s the potential surprise balance due at tax time that usually is a more pressing concern and often has to do with coordinated withholding, not income level,” he said.
In other words, it’s not you — it’s them. The problem isn’t how much you’re earning; it’s that your employers aren’t communicating or coordinating with each other.
However, if you try to remedy the issue by adjusting your W-4, you can overcorrect and withhold too much money.
This kind of sounds like a no-win situation, since you can’t sit your employers down at a kitchen table and ask them to hash it out. Don’t panic: You can use the IRS Tax Withholding Estimator, consult a tax professional, adjust your W-4 strategically across all your jobs (not just one), or revisit your withholding anytime your income changes.
You Might Overpay Social Security Tax (But You’ll Get It Back)
You already know that your employers withhold Social Security tax, but you might not know that Social Security tax works differently from income tax. That difference can work in your favor.
Kang explains it this way:
“Social Security tax is withheld by each employer individually, up to the wage base limit,” he said. “For any combination of wages in excess of this amount, any Social Security tax withheld is reconciled as a credit on the return.”
In essence, yes, there is an annual wage limit, but your employers don’t track what others have withheld. If you exceed that limit across multiple jobs, you may overpay during the year. The good news: Any excess Social Security tax withheld is credited back when you file your tax return.
That said, Kang cautions against assuming that money will come back to you quickly. It won’t arrive until you file your return, which means overwithholding can tighten your cash flow during the year if you’re not careful.
1099 Income Comes With a Double Tax Hit
Kang also wants you to brace yourself if part of your income comes from freelance or contract work that requires Form 1099 reporting.
“1099 income also comes with self-employment tax liability, in addition to regular income tax,” he said. “Because there is no withholding from these payments, taxpayers need to plan ahead for both types of tax liability.”
It’s a more polite way of saying that the responsibility to cover these taxes falls entirely on you. Deductions can be especially valuable here if you qualify for them, but don’t expect deductions to eliminate your tax bill altogether. You still need to manage your cash flow so you’re able to pay when taxes come due.
You can save yourself a financial headache by adopting smart habits, such as:
Setting aside a percentage of each payment for taxes
Tracking expenses consistently throughout the year
Keeping business and personal finances separate
These simple practices can make tax time less stressful. Your future self will thank you.
You May Need To Pay Quarterly Estimated Taxes
Often, withholding from side income doesn’t cover your full tax bill, which means many freelancers and side hustlers need to make quarterly estimated payments. Kang says these payments are based on your expected annual earnings.
Think of it this way: The IRS expects you to pay as you go, rather than waiting until April to settle up.
“Failure to make these payments could incur penalties, even if the entire tax is paid at time of filing,” he said. “Staying current with what you owe during the year can also help avoid adding a second charge.”
The Bottom Line
Congratulations on all your hard work this year balancing the demands of multiple employers. It’s no small feat — and neither is navigating the tax implications that come with it.
However, by taking a proactive approach to your taxes, you can do more than avoid penalties. You can stay in control of your money all year long.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal, or tax advice.
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