Top Five Tax Surprises with Multiple Jobs

Love it or hate it, taxes is part of life. However, taxes with multiple jobs is tricky, especially with high-paying jobs involving equity compensation like employee stock purchase programs (ESPPs), restricted stock units (RSUs), and Incentive Stock Options (ISOs) — all very common in tech. Now throw in some 1099 self-employed income, another common occurrence, the tax complexities add up. Whether you’re using an accountant or filing your own taxes, here are the top 5 surprises I learned from filing my taxes with multiple jobs while making over $500K for the very first time. Note: The IRS and tax regulations still operate in a one-employer-for-one-employee world, and hence why you’ll encounter some tax surprises while working two high-paying jobs at the same time.

“Nothing is certain except for death and taxes.”

Benjamin Franklin

#1 Have Excess Social Security Tax Withheld

Let’s start with the good news because, sadly, it’s all downhill from here. US tax laws cap social security contributions at the individual level, which means with two jobs you’ll be double-paying on social security — assuming both your jobs exceed the income limit of $137,700 for 2020. To put it in another way, you’ll pay the max social security contribution of $8,537.40 per W-2, and there’s no way to tell the other employer to exempt you from social security tax withholding. Bottom line: You’ll get the excess social security back as a tax credit back when you file your tax returns.

If you’ve entered your W-2s correctly into any tax filing software, the excess social security tax will automatically get calculated and shown on Schedule 3, Part II, Line 10. No further action required on your part other than tracking your anticipating excess social security tax credits per W-2. For example, if you worked three jobs over a tax year each paid over $137,700 in gross income, then you’d anticipate excess social security tax credit for 2020 is $17,074.80. This is because the other two W-2s will be withholding up to the max social security liability ($8,537.40 x 2) since withholding is mandatory by the IRS.

Tax	2019 Limit	2020 Limit	2021 Limit
Social Security gross income	$132,900.00	$137,700.00	$142,980
Social Security liability	$8,239.80	$8,537.40	$8,864.76
Medicare gross income	No limit	No limit	No limit
Medicare liability	No limit	No limit	No limit

#2 Likely Pay Additional Medicare Tax

Similar to social security, those making over $200,000 to $250,000 (single and married jointly, respectively) will need to pay an additional 0.9% of Medicare tax. The IRS requires your employer to withhold additional Medicare tax once your W-2 wage hits over $200K. Here’s the bad news: you can’t be exempted from this withholding and if you’re doubly employed then neither employer will know you’re already over your threshold amount so you’ll owe 0.9% of total gross income over $200K. Let me play out a couple of scenarios for illustrative purpose:

Scenario 1: You made $200K in W-2 wage in each of your two jobs

Let’s say you made exactly $200K per year in each job, then no additional Medicare tax will be withheld by your employers since each in their own eyes did not you did not hit the IRS threshold amount ($200K) requiring additional Medicare tax withholding. It’ll be up to you to pay the additional Medical tax through quarterly estimated payments, which is about $1,800 you’ll have to spread out over four quarters (derived from applying 0.9% tax to the extra $200K job).

Scenario 2: You made $150K in W-2 wage in each of your two jobs, and your spouse made $250K in her one job

Out of the $550K in total family W-2 incomes, only $50K got taxed for the 0.9% additional Medicare tax. Guess whose? Yep, it’s your spouse’s W-2 because in that job they hit the IRS limit of $200K at the individual level so her employer is obligated by law to start withholding the additional 0.9% in Medicare tax. So let’s set that $50K that got taxed the additional 0.9% aside. For the remainder $500K in W-2 incomes you both made, you can subtract the threshold amount of $250K for married filing jointly, leaving you with $250K still needing to pay the 0.9% additional Medicare tax, which is $2,250. Confused yet? Keep reading.

Filing Status	Threshold Amount
Married filing jointly	$250,000
Married filing separate	$125,000
Single	$200,000
Head of household (with qualifying person)	$200,000
Qualifying widow(er) with dependent child	$200,000

The good news is 0.9% is a really small marginal increase, and you can offset it from the anticipated excess social security tax windfall you’ll get in 2021 which is $8,864.76. You’ll have to guesstimate the additional Medicare tax you’ll owe when filing taxes with multiple jobs. Either deduct what you owe from the excess social security tax or pay what you owe over four quarters of estimated payments. Here’s the IRS Q&A page for the curious. For the tax year 2020, the additional Medicare tax is captured on Form 8959.

#3 Likely Pay A Net Investment Income Tax

The Net Investment Income Tax, or NIIT, is really bad news for tech’s equity compensation. This tax applies to short and long-term capital gains when your gross income (which includes your investment incomes) exceeds the threshold amount with respect to filing status. This was Congress’s way of taxing investments to pay for the Affordable Care Act (ACA) after a certain level of income. However, I personally do not like the permanently fixed nature of the threshold amount, as well as how it disproportionately impacts families with a mix of W-2 and investment incomes. Here’s the IRS Q&A page for the curious. For the tax year 2020, the additional Medicare tax is captured on Form 8959.

The key takeaway here you, and solely you, are responsible for paying both your capital gains taxes and the additional 3.8% NIIT when your gross income is over the NIIT threshold amount. Estimated payments can be made on the IRS online payments portal.

Filing Status	Threshold Amount
Married filing jointly	$250,000
Married filing separately	$125,000
Single	$200,000
Head of household (with qualifying person)	$200,000
Qualifying widow(er) with dependent child	$250,000

The good news is if you sell your primary home, the capital gains are still exempted from NIIT (up to 250K for single and 500K for married). However, once you’re over the exempted amount, NIIT will apply when you’re over the NIIT threshold amount. The takeaway here for the two-job hustler is if you sell your stocks, prepare to pay an additional 3.8% of taxes on top of the usual short and long-term capital gains tax. But watch out for the threshold below for long-term capital gains since it jumps to 20% and with the NIIT you’re looking at 23.8% all-in for Federal and another 9.3% or 10.3% for California.

Long-Term Capital Gains Tax Rate	Single Filers (Taxable Income)	Married Filing Jointly
0%	$0-$40,000	$0-$80,000
15%	$40,000-$441,450	$80,000-$496,600
20%	Over $441,550	Over $496,600

#4 Likely Lose Income-Based Tax Deductions or Credits

Got kids or student loans? While we can’t cover everything, we’ll touch briefly on these two common income-based ones. Here’s the official list of deductions and credits from the IRS, though not all are income-based. For the curious, reading Investopedia’s tax deductions and credits guide — it’s much easier to understand than the IRS. Below we’ll focus on income-based deductions and credits because your 2x income now will start affecting your taxes since your reliance on deductions and credits to lower your tax obligations will no longer hold. Hint: you’ll likely not get the $2,000 child tax credit per kid for 2020 or $3,000 to $3,600 for 2021.

Child Tax Credits

Best of all tax credits — the proverbial subsidizing-parents-of-future-taxpayers. I’ve benefited from this tax credit, albeit only very briefly. As more people delay having kids until they earn more, I suspect in the future there will be more cross-subsidization from well-to-do to less well-to-do parents. Is that fair? I think so. Studies have shown the well-to-do kids will earn more and wealth persists generationally. That said, if you make over $400K, this credit will start to scale down until it becomes zero at $480K. For the doubly employed, you’ll most likely be out of pocket and can’t count on getting this tax credit. For 2021, the child tax credit becomes even more complicated with the American Rescue Plan Act, so we won’t get into it here. You can read more about the Child Tax Credit for 2020 and 2021 here.

Student Loans Interest Deduction

While a $2,500 deduction (not even a tax credit) is a small potato for high double earners, it is still something. Unfortunately, there’s income eligibility to claim this deduction. For the Overemployed, you’ll lose this deduction because the income limit when the phase-out starts is $70K for single and $140K for married filing jointly. You can learn more about student loan interest deduction here.

#5 You Can’t Rely On IRS W-4 Calculator To Be Accurate

Let me just put it simply — the re-worked W-4 is just plain-o confusing! Instead, use the Turbotax W-4 calculator, and then enter the final numbers into your employer’s W-4 form. Even then, you’d need to guesstimate your credits and deductions accurately, as well as other incomes like rental income, investments, or ad hoc consulting and self-employment. If you have lumpy incomes like a big bonus or selling RSUs, then these calculators won’t work as well.

Try your best to get your W-4 and withholdings accurate, but chances are, because of tax surprises #1 through #4, you’ll need to do some manual calculations are the end of each quarter and potentially make extra tax payments through the IRS online payments portal. You can use the tax table below directionally to see if you’re on track to meet your federal tax obligations by end of 2021. This alone, however, doesn’t account for tax surprises #1 through #4.

2021 Federal Tax Table For Married Fiing Jointly

Tax Rate	Taxable Gross Income	Tax Contribution
10%	$19,900 and below	$1,990 (10% x $19,900)
12%	$81,050	$7,338 (12% x $81,050 – $19,900)
22%	$172,750	$20,174 (22% x $172,750 – $81,050)
24%	$329,850	$37,704 (24% x $329,850 – $172,750)
32%	$418,850	$28,480 (32% x $418,850 – $329,850)
35%	$628,299 and less	$73,308 (35% x $628,300 – $418,850)
37%	$628,300 and more	*A really big af number

For State taxes, you can repeat the tax contribution calculation above using the table from Tax Foundation. Welcome to the life of working two remote jobs at once — taxes with multiple jobs is complicated. Uncle Sam treats capitalists and laborers very differently, so write to your Congressmen if you’re not happy with why they came up with seemingly arbitrary numbers and trigger points for income-based deductions and credits. Meanwhile, once you’ve taxes figured out, just keep your head down and earn more — it’s worth it. Like in investing, taxes are obligatory but yet secondary concerns. If you don’t make any money, there isn’t much to tax you on.

Shocked? Let Us Know Your Thoughts

For other tax-related investing issues, such as 401(k)s and backdoor IRA (the high-income way to contribute to a Roth IRA), I’ll be writing more about it under Money Matters. Meanwhile, here’s a short 1-minute video recap on taxes with multiple jobs: