Considering A Second Job? Consider Your Taxes

In this day and age, many people have to work more than one job to make ends meet. Sometimes, though, that second job may end up doing more harm than good, at least where your taxes are concerned. Thus, before you say yes to another job, consider the impact it might have on your taxes and whether or not it’s ultimately worth it.  

Will Your Tax Bracket Change?

One thing to think about is whether or not your second job will put you into a new tax bracket. This will depend on how much you earn at your current job and how much you will earn at the second job.

If you’re already close to the higher end of your current tax bracket, there’s a good chance you’ll get sent into a new one, which could mean being taxed at a higher rate. If that’s something you can manage, then go ahead and take that second job. If not, though, you may want to rethink it.

Will You Lose Out on Credits?

Many people receive special tax credits based on their incomes. One of the most popular is the Earned Income Credit. When considering a new job, think about whether the added income will make you ineligible for various benefits to which you’re currently entitled. If you’re losing out on a lot of benefits and not earning enough at the second job to cover the loss, a second job might not be right for you at this time.

Will You Stop Getting Tax Refunds?

Do you rely on your tax refund each year? If you’re like many people, that check makes a big and positive difference in your life. If it’s a difference that you can’t live without, consider whether or not you’re still likely to get a refund or as big of one if you take on a second job. While not getting a refund is not necessarily a dealbreaker for everyone, think about whether or not it is for you.

A second job is not always a bad thing, but it’s not always a good thing for everyone or for every situation. Thus, consider your own situation and how a second job will affect your taxes before you sign that work contract.

Understanding Tax Rates

Understanding personal income taxes and how they work can be a bit harrowing. However, with a little help from a financial professional and some research into the processes of the IRS, it doesn’t have to be all that difficult.   

Basically, all personal income taxes are taxed on a graduated scale. This means that your tax rate might be:

l  10%

l  15%

l  25%

l  28%

l  33%

l  35%

l  39.6%

The tax percentage that you will fall into, referred to as a “tax bracket” is dependent on your income and your filing status. Your type of income also matters. Most people just face ordinary tax rates like those described above, though some will face a separate, specialized tax rate due to income related to qualified dividends or long-term capital gains.

There are also, outside of these, specialized tax rates to consider, such as:

l  Social security tax rates

l  Alternative minimum tax rates

l  Medicare tax rates

l  Additional Medicare tax rates

l  Net investment income tax rates

Whether or not these and other specialized tax rates will apply to you and to what degree will be dependent upon several factors.

Hopefully, all of this makes you see just how complex understanding your tax rate can be. And, while doing research on your own is vital and helpful, never underestimate the importance of hiring a financial professional to help walk you through it all and to guide you into making the best possible decisions for your needs, goals, and circumstances.

How the Affordable Care Act Affects Taxpayers

Barack Obama signing the Patient Protection and Affordable Care Act at the White House (Photo credit: Wikipedia)

Many view the recently passed Affordable Care Act as a blessing while others view it as a curse. Regardless of how you feel about the tax, you do need to understand if it will affect your paycheck and/or investments, and, if so, how. While all kinds of people could potentially be affected by the Act, it will mainly impact those who fall within the top two tax brackets.

Individuals who earn above the current threshold amount will be subject to a 0.9% increase in funds taken from their paychecks as a result of the new tax. Likewise, those earning above the threshold amount will lose 3.8% to Net Investment Income taxes.  And, even if you aren’t currently subject to an increase in taxes, you could be if your earnings increase; there is no evidence that threshold amounts will increase due to inflation.

If you are going to be affected by this new tax, a Naperville accountant can explain to you how you will be affected and what you can do to minimize your tax losses. You can find a helpful, knowledgeable Naperville accountant at Susan S. Lewis, Ltd. 

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