Wrapping packages and taking returns at a department store, tending bar at a holiday banquet, and caring for a vacationing neighbor's pets are all temp jobs that are as much a part of the season as putting up the wreath and mistletoe.
They may not be as much fun, of course. But if the income from that holiday job means more funds to pay your credit card bills in January, those extra hours probably will prove their worth.
Go to Consumer Reports' 2018 Holiday Central for updates on deals, expert product reviews, insider tips on shopping, and much more.
After Santa's gone, though, Uncle Sam wants a piece of the action.
"The extra pay during the holidays is great, but the IRS doesn't give you a holiday from your taxes," says Jackie Perlman, principal tax research analyst at The Tax Institute at H&R Block.
If you're under 65 and single, and your total income from all sources this year is $12,000 or less, you don't have to worry about owing 2018 taxes; for couples filing jointly, the threshold is $24,000. But if that part-time or temp work raises your total income above those thresholds, you could owe next tax season. Even if you're withholding enough at your main job, extra seasonal income could raise your tax liability—or reduce your refund.
Here are some tips to help minimize the tax burden.
What About Cash?
Cash and tips earned from a holiday job—or any job—are supposed to be reported as income on your tax returns. Tax preparers don't want to hear about your cash earnings unless you are prepared to pay tax on them.
"The law is clear," says Douglas Stives, a professor of tax law at Monmouth University in West Long Branch, N.J. "If I know you have cash income, I'm obligated ethically and legally to report that income on the tax return."
Are You a Contract Worker or an Employee?
How much you'll owe at tax time depends on whether your part-time employer is treating you as an employee or an independent contractor.
When your paycheck shows no income taxes withheld, your employer considers you an independent contractor. You'll have the benefit of all that income now. But if you're required to pay income taxes in the spring, you could owe not only state and federal taxes but also self-employment tax, which treats your Social Security and Medicare payroll taxes—aka FICA—as if you're both employer and employee. That self-employment tax is 15.3 percent, twice the regular FICA tax.
If you make more than $600 at your holiday job this year, your employer must send you IRS Form 1099-Misc—"Miscellaneous Income"— early in the tax season. You'll need that document to prepare your income taxes. If you make $600 or less, the employer doesn't have to send you the form, but you're still responsible for reporting that income on your tax return.
Tip: Consider paying all or a portion of what you owe in estimated quarterly taxes. Fill out IRS Form 1040-ES (PDF) and send the IRS your payment by Jan. 15, 2019. That can help spread out the pain so that you won't owe as much in April.
When taxes have been withheld from your paycheck, you're considered an employee. Keep in mind that your employer figures your tax as if you're a 52-week-per-year employee, not a seasonal worker. So if your take-home looks smaller than expected, be aware that a portion of the taxes that were deducted will get refunded after you file your taxes next spring.
If you have another employer, you'll pay FICA payroll taxes twice. There's a $128,400 income limit over which you don't have to pay FICA anymore, though, so if your income from both jobs exceeds that, you're entitled to get back the excess FICA you've paid. But you'll have to file your taxes to get it.
Tip: If your taxable income is below certain dollar thresholds, you don't have to file a 2018 federal income tax return. As the IRS' tax table draft for 2018 (PDF) shows, the threshold varies depending on your filing status and whether you're age 65 or younger. But even if you're not required to file, you should still do so to get back any tax that was withheld.
The Impact of a Second Job
If your main household income is from your day job—or your spouse's job—your holiday job earnings could raise your income to another tax bracket. That means you'll pay a higher marginal tax rate. If, say, you're single and your total adjusted gross income increases from $38,000 to $40,000, you will have crossed over the line from a 12 percent to a 24 percent bracket. Because the new bracket starts after $38,700, you'll pay 24 percent only on the $1,300 ($40,000 minus $38,700) earned above that limit.
A bigger issue could be whether that extra income reduces or eliminates eligibility for certain tax breaks and subsidies, including insurance subsidies under the Affordable Care Act (despite of a recent court decision, there's expected to be no immediate impact on health insurance marketplaces or coverage). The only way to know is to contact a tax professional or use do-it-yourself tax software.
Tip: If you moonlight every year and your income from that work is more than a few thousand dollars, consider self-incorporating, suggests Richard Lavina, CEO and co-founder of Taxfyle, a Miami-based website that matches CPAs with tax clients, Uber-style. "It's more legwork to do it initially, but there are some benefits," he says. One perk: You get a reduction in your self-employment tax.
Another plus: Under the new tax law, business owners don't pay federal income tax on the first 20 percent of business income if their total income from all sources is below $157,500 for individuals or $315,000 for married taxpayers who are filing jointly.
