There are a growing number of taxpayers who are doing part-time work to earn extra income or as an alternative to working full-time. However, you may now be wondering whether your part-time work is subject to taxation by the IRS. We outline your tax obligations in this quick guide.
Let’s tackle this topic by answering three common questions about this topic.
How does working part-time affect taxes?
One common question that people have when working part-time is: Do you pay less tax when you work part-time? The short answer is yes. You will pay less tax because your taxable income will be lower than that of full-time workers. The IRS imposes federal income tax on all earned income. Your tax rate depends on the tax bracket your total income puts you in.
However, part-time workers are still subject to the same tax withholding rules as full-time workers. This means your employer will still withhold social security, medicare taxes, and income tax from your paycheck.
Despite the smaller income, you may still be required to pay additional taxes, depending on your situation. For instance, you may need to make estimated tax payments if you pay self-employment tax. A typical example of this is freelance work. In this case, if you pay too much tax, you will be eligible for a tax refund at the end of the tax season.
Standard deduction and part-time work
One of the key factors that determine how much tax you pay is whether you qualify for the standard deduction. The IRS allows all taxpayers to reduce their taxable income by claiming the standard deduction, which is available to both full-time and part-time workers.
In 2024, the standard deduction is $14,600 for single filers and $29,200 for married couples filing jointly. If you’re working part-time, this deduction could significantly reduce your tax bill—or eliminate it altogether if your total income falls below the deduction amount.
Tax brackets for 2024 tax return
Any income you earn will be subject to federal income tax. To help you understand how much tax you will pay, the IRS has published the following guidelines:
35% for incomes over $243,725 ($487,450 for married couples filing jointly)
32% for incomes over $191,950 ($383,900 for married couples filing jointly)
24% for incomes over $100,525 ($201,050 for married couples filing jointly)
22% for incomes over $47,150 ($94,300 for married couples filing jointly)
12% for incomes over $11,600 ($23,200 for married couples filing jointly)
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Do you have to pay taxes on side work?
Yes, if you’re working a second job or engaging in short-term contract work as an independent contractor, you still have to meet your tax obligations. All income, regardless of how it is earned, must be reported to the IRS - even if you only earn a small amount. Let’s consider a part-time waitering position. What would you be under obligation to pay in taxes?
If you're a waiter who also earns tips through side gigs like catering or working as a self-employed contractor, you'll need to file self-employment taxes. This includes paying Social Security and Medicare taxes on that income, as well as making estimated tax payments if necessary. If your employer does not withhold enough taxes to cover your tip income, or if you work multiple jobs, you may owe taxes at the end of the year. To avoid this, consider making estimated tax payments throughout the year to cover any additional tax liability.
For traditional full-time employees and part-time employees (e.g., a half-day admin position) you don’t need to worry because taxes are withheld by the employer and are sufficient to cover your tax obligations. However, if you are self-employed, you are responsible for filing your own tax return and paying taxes over to the IRS. The self-employment tax covers both the employer and employee portions of Medicare taxes and Social Security taxes, totaling 15.3%.
Additionally, if you expect to owe more than $1,000 in taxes when filing your return, the IRS requires you to make estimated tax payments quarterly. These payments ensure that you stay up to date on your tax obligations and avoid penalties.
What does the IRS consider part-time work?
Interestingly, the IRS doesn’t have a strict definition of what qualifies as part-time work. But generally workers that work less than 35 hours per week, qualify to be called part-time employees.
Part-time employees may also not receive the benefits of full-time workers, such as health insurance. The U.S. Department of Labor reports that part-time work is especially prevalent in sectors like retail, hospitality, and healthcare, where workers are more likely to be employed for fewer hours per week. Seasonal employees (such as farm workers) also qualify as part-time employees.
Tax tips for part-time workers
Understanding the tax implications of working part-time or having side work from multiple sources is essential for meeting your tax obligations.
Here are a few basic tips to help you navigate through the process:
Ensure all employers withhold the appropriate taxes - If you are working a part-time job, as well as a full-time job, ensure that your employer uses the IRS withholding rules to withhold the right amount of taxes.
Track all your income - If you are self-employed or receive income from multiple sources, keep detailed records of your income and expenses.
Make estimated payments - If you don’t have taxes withheld from your paychecks, you’ll need to make quarterly estimated tax payments to the IRS to avoid penalties.
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Have you got multiple income sources and feel overwhelmed with your tax filing? Hall Accounting Company offers individual taxpayers a chance to get your taxes done accurately, and benefit from allowable deductions. We will file your taxes for you, giving you peace of mind and a stress free experience.
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Conclusion
Working part-time has several advantages, including flexibility and the potential for reduced federal income tax due to lower taxable income. However, you will still need to meet your tax obligations. Federal income tax can be much lower for part-time workers, freelancers, and self-employed, depending on the total income you earn.
If you have income from multiple sources, you must report all your income to the IRS. Allowable deductions and tax credits can be used as a way of reducing your tax liability, and for the best advice on how to do this, consult a tax professional.
We hope this quick discussion about part-time tax has helped answer your questions. If you have any other questions, our team is happy to help you clear up any confusion.
Until next time.