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Last year, I worked at two different jobs, but that fact is not likely to cause me any tax headaches when I file my 2008 taxes. That's because I worked those jobs consecutively, not concurrently. I left one employer to go to work for another. No doubt this scenario was played out by many Americans last year.
However, what about those who worked more than one job at a time? Those people, at least the ones who didn't plan ahead, might face an unpleasant surprise between now and April 15th.
When one has multiple employers at a given time, each employer might be withholding taxes as if they are that employee's only employer. That could easily result in not enough taxes being withheld, leading to the employee having to write a check – possibly a fat one – to the IRS at tax time.
I'll compare two hypothetical employees as an illustration. Let's say that Mark and Susan both made $80,000 in 2008 and that each of them held two jobs. However, let's say that Mark worked his jobs concurrently during the entire year, whereas Susan quit one job before taking the other. Just to make things come out evenly for the purposes of this illustration, we'll say that each of them made $40,000 at each of the jobs they worked.
In Susan's case – with no action required on her part – her federal withholding taxes were based on a projected annual salary of $80,000, which matched what she ultimately made. However, in Mark's case – unless he directed his employers otherwise – his federal withholding taxes were based on a projected annual salary of $40,000, even though he actually made twice that much.
This is problematic because those who make $80,000 are in a higher overall federal tax bracket than those who make only $40,000. Nearly half of the salary of someone making $80,00o is in the 25% tax bracket. And to top it off, a small portion of his or her salary is even in the 28% bracket.
Now compare that to an individual making only $40,000, who only sees about a fifth of his or her salary taxed at 25% and none of it taxed at 28%. Therefore, Mark's employers would not have withheld enough taxes from his pay unless he adjusted his W-4 forms to use zero exemptions and/or have additional money withheld.
The above illustration was based on the assumption that neither taxpayer had any minor children and that each was either single or had a spouse who also worked and could not be claimed on his or her tax returns. The scenario could vary greatly for those who have dependents to claim, depending, of course, on how many. But the bottom line is that, if you find yourself in a situation similar to Mark's, you may need to take a long look at adjusting your W-4 to avoid regrets down the road.
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