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  • Tax rate for moonlighting wages

    I recently started moonlighting to supplement my fellow salary and was surprised to see that the federal income tax rate on my moonlighting earnings are 25% (total tax rate of 37% when factoring in other federal and local taxes). The explanation from my HR department is that the money I earn moonlighting is considered additional wages and treated like a bonus when applying taxes. For background, I moonlight at a community hospital that has a contract in place with my university, so I receive my fellow salary and moonlighting wages on the same paycheck.

    For other people that moonlighted during training, is this the norm with respect to tax rate? Would it be different if the pay was coming directly from the moonlighting facility (i.e. could the wages be coded differently)?

    Thanks!

  • #2
    What is deducted from your paycheck may not be the same as your actual tax rate for those hours worked. Depending on exemptions, deductions, filing statues, etc... it may end up being higher or lower in the end. If you have a typical fellow's salary, and are not married, your fellow salary would put you in the 25% federal income tax bracket, so that makes sense. If you were an independent contractor and could deduct a lot of business expenses, you might be able to reduce the tax burden a bit.

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    • #3
      My wife has had a similar experience and you probably want it withheld at the supplemental rate.  Taxes are withheld from your paycheck based on what that paycheck projects your yearly income as.  If you make $50k and are in the 25% tax bracket, you don't actually pay 25% in taxes.  You pay 25% on every dollar over about $40k (or whatever the cutoff is).  Taxes will be withheld at whatever your tax rate is calculated at.  When these calculations are made on every paycheck, it thinks you're making your usual $50k.  When you add $1-2k of supplemental (moonlighting) income, all of this gets taxed at the marginal rate because the other paychecks have taxes withheld thinking you're making $50k.

      Bottom line:  Your total tax due at the end of the year will still be the same, regardless of how much is withheld.  If you find yourself getting a large return every year, adjust your W-4.

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      • #4




        I recently started moonlighting to supplement my fellow salary and was surprised to see that the federal income tax rate on my moonlighting earnings are 25% (total tax rate of 37% when factoring in other federal and local taxes). The explanation from my HR department is that the money I earn moonlighting is considered additional wages and treated like a bonus when applying taxes. For background, I moonlight at a community hospital that has a contract in place with my university, so I receive my fellow salary and moonlighting wages on the same paycheck.

        For other people that moonlighted during training, is this the norm with respect to tax rate? Would it be different if the pay was coming directly from the moonlighting facility (i.e. could the wages be coded differently)?

        Thanks!
        Click to expand...


        As others have stated, the amount withheld will not change your actual tax liability. If you want less withheld, simply file a new W4 now. Are you moonlighting at the same hospital as your "day" job? If not, I find their response to you a little odd as it is not up to them to decide what to consider your wages, just to apply the tax tables to what you claimed on your W4.

        Determining the amount to withhold is basically an educated guess by the government. Your employer has no idea if your spouse is making 6 figures or also in school, whether you will be able to itemize, whether you have rental income/loss, etc. etc. The best thing to do is to calculate a tax projection (there are many good, free tax calculators on the internet) and adjust according to the results.

        Getting a refund in April is not the worst that can happen to you in this low interest environment, especially if you would not save the difference you are having withheld or use it for something necessary.
        Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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        • #5
          I have a stay-at-home wife and child and have entered the appropriate number of allowances on my W-4. So the appropriate amount of tax is being withheld for my fellow salary (~10%).

          But I have been told by the payroll folks that my moonlighting salary is "coded as ADP/additional income," which is subject to a much higher federal income tax rate (25%). I think my employer is treating my moonlighting income the same as they would a bonus to a salaried employee. I am fine having this money withheld and getting a refund after filing my taxes. My question is, when I file my taxes next year, will this moonlighting income be treated differently by the IRS (and thus taxed at a higher rate) than my regular salary?

          Thank you guys for your help!

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          • #6


            My question is, when I file my taxes next year, will this moonlighting income be treated differently by the IRS (and thus taxed at a higher rate) than my regular salary?
            Click to expand...


            No, since this is W2 income (i.e. you won't have double FICA taxes) all income is totaled on the W2 line on page 1 of 1040.
            Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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            • #7
              Fantastic! Thanks Johanna!

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              • #8
                That is how it worked in my residency as well, moonlighting for the same hospital system it was basically like a bonus, not 1099 income

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                • #9
                  In a similar situation. How did you end up when you did your taxes?

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                  • #10
                    I recommend anyone who is confused by this issue to do your own taxes! Even if you don't trust yourself to file correctly, fill out the boxes and understand it.  Then you can have a professional do the filing.

                    It is not that complicated.  And questions like this will seem so silly to you after you understand how it works.

                    I was with a group of senior residents who were complaining about receiving a bonus because of 'such a high tax rate on bonuses.' The MBA trying to screw them was literally drooling.

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