Does Changing Jobs Affect Your Tax Return? Learn How

Changing jobs does affect your tax return because the changes will influence the amount of income that you have to report to the IRS later on. You will also have to fill out an updated W-4 form each time you start working at a different company.

So, if you earn a higher salary at your new job than at your previous one, it is also possible that you may be moved to a higher tax bracket and end up paying more taxes. Or, you may find that your additional earnings have led you to qualify for certain tax refunds.

If you want to learn how switching jobs or employers can impact your tax responsibilities, then this article serves as the perfect guide for you.

Key Takeaways

• Knowing how to answer the question, ‘Does changing jobs affect your tax return?’ helps you understand how your employment status and income can impact your tax situation
• Switching jobs can affect your tax bracket, retirement account contributions, Social Security and Medicare taxes, and eligibility for certain tax deductions.
• To calculate or estimate your taxes when switching jobs, you must account for your total earnings from your previous and current jobs, as well as the total unemployment benefits or freelancing income you received or generated within the year.

7+ Ways in Which Changing Jobs Might Affect Your Tax Return

There are different ways that changing jobs may affect your tax return on a short- or long-term basis. It is crucial to understand these possible consequences to avoid underpaying or overpaying your taxes.

At the same time, being mindful of how your career choices can benefit or complicate your tax situation leads you to make more well-informed decisions about your employment and financial management strategies.

In that regard, we’ve listed eight possible ways switching jobs affects your return:

#1. Potential Change in Tax Brackets

As we’ve briefly mentioned earlier, changing jobs could mean moving to a higher or lower tax bracket, depending on how much you get paid in your next job.

That said, you may have to change how you calculate and estimate your withholding tax amount for the tax year. For instance, if you get bumped to the 22% tax bracket and earn $55,000 annually, then your income will be taxed accordingly.

This is the breakdown:

• 10% for the first $16,550 of your taxable income

• 12% for the next 35,549, which is the difference between $11,601 and $47,150

• 22% on the remaining $13,275, which is the difference between $55,000 and $47,150

In short, as you move to a higher tax bracket, you’ll likely find that calculating your taxes becomes more elaborate.

#2. Retirement Account

Changing jobs during the tax year also affects some retirement accounts, particularly Roth IRAs, 401(k)s, and 403(b)s. The phase-out ranges for Roth IRAs in 2024 based on your filing status are as follows:

• Single: $146,000 to $161,000

• Married, filing jointly: $230,000 to $240,000

• Married, filing separately: $0 to $10,000

The money you have already contributed to your Roth IRA account will remain, but you may not contribute more than the set phase limits, depending on your income and filing status.

On the other hand, if you had less than $7,000 in your 401(k) or 403(b) account by the time you left your job, then your previous employer can either roll your contribution into an IRA account or cash out your 403(b) or 401(k).

If more than $7,000 has been vested in your retirement account, you may move the money from your account into an IRA or into your current employer’s plan. You also have the option to withdraw your contributions as cash.

#3. New Local and State Taxes

If your new work entails moving to a new state or locale, then changing jobs affects your tax return when you have to adhere to the existing tax regulations in the area.

Some states do not levy state income taxes, while other states and locations do.

As such, if you have been paying state and local taxes in your previous work location, you may end up paying more taxes if you move to states known for levying higher taxes, such as New York, Maine, Vermont, Connecticut, New Jersey, and Minnesota.

#4. Social Security and Medicare

For 2024, the wage base limit for Social Security taxes is $168,600.

If your gross income in your new job exceeds the wage base limit, then you are exempt from paying the said tax, and your employer will stop withholding a portion of your salary to pay Social Security taxes.

At the same time, your new employer must withhold Social Security taxes from your earnings until such time that you meet the threshold. Any excess amount withheld from your salary will be sent back to you in the form of a tax refund when you file your taxes.

For Medicare taxes, changing jobs will affect your tax return if you end up earning a higher salary rate. That is because there is an additional 0.9% Medicare tax levied on high-income taxpayers.

#5. Unemployment Compensation

Not all taxpayers who switch jobs or leave their previous jobs can transition into a new one instantly.

If there has been a significant gap between the time when you left your previous job and started with a new one, your period of unemployment does not fully exempt you from paying taxes.

In fact, the availability of the unemployment benefit should make it even more ideal to continue filing your returns even when your career changes or employment gaps make you fall within the tax-free threshold.

The tax-free threshold refers to when a taxpayer’s average income does not meet the minimum income threshold for levying taxes.

However, since the Internal Revenue Service considers unemployment benefits as taxable income, you technically still have a specific income source to report in your tax return.

Put simply, changing jobs also affects your tax return when you receive unemployment benefits and pay taxes on the said form of government assistance.

#6. Self-Employment Tax Changes

Suppose you did not switch to a new employer but rather changed your employment status from a full-time employee to a freelancer or independent contractor. Once you shift from a full-time employee to a self-employed individual, you become subject to self-employment taxes.

Self-employment taxes are levied on independent contractors, freelancers, and even business owners, and they comprise your FICA (Social Security and Medicare) taxes.

Unlike employees who share the payment for Social Security and Medicare taxes with their employers, independent contractors shoulder the full 15.3% FICA tax rate.

Another way that changing job status affects your tax return is if you use the self-employment tax deduction, one of the many types of tax deductions for independent contractors.

To reduce the income taxes you owe, you must include your self-employment taxes in your business expenses on your return.

#7. Filing Taxes With or Without a W-2 Form

Perhaps one of the most daunting ways that changing jobs affects your tax return is if you have to wait for multiple W-2 forms from different employers.

Depending on your financial situation or employment status, you may have had to switch to different employers in a single tax year. Or, you may have started a job halfway through the tax year.

Unfortunately, not all employers will comply with the set deadline for issuing their employees’ copies of their W-2 forms.

As such, you could potentially end up filing for a tax extension or filing your taxes and amending your returns later on if one of your employers has not yet furnished your Wage and Tax Statement.

#8. Unused Paid Time Off & Severance Pay

When you leave your job, you may still have unused paid time off. All unused paid time off, such as sick days, vacation leaves, or personal days off, must be accounted for, included in your final paycheck, and subject to federal income and payroll taxes.

Similarly, if you are to receive your severance pay from your last employer, the said payment will also be added to your last pay and be subject to taxation. The reason behind that is that the IRS tags severance compensation as supplemental pay or wages.

As such, you may not receive the full amount of your severance pay since the IRS rules require your employer to withhold 22% of your last pay. You can, however, make estimated tax payments and possibly qualify for a tax refund if you paid an excess amount of taxes to the IRS.

How to Calculate Your Taxes When You Change Your Job

To calculate your taxes due when changing jobs, the first thing you need to do is get the following values:

• The total payment received from your last employer.

• The total payment or compensation paid to you by your current employer.

• The full amount of unemployment benefits you received, if any.

• The total income you earned from any freelancing work or sole proprietorship you may have, if applicable.

Next, add the total amount of each of these values to come up with your annual income. You can use your estimated annual income to estimate and adjust your withholding tax accordingly.

Meanwhile, the tax calculation for changing jobs in the same fiscal year can be more complicated than when you are calculating your taxes for a calendar year.

Typically, businesses and government agencies use the fiscal year or financial year for budgeting purposes and strategizing their finances. But when it comes to calculating taxes, most organizations use the calendar year.

As such, you may have to acquire permission from the IRS to use or switch to a fiscal year. To do so, you must file Form 1128, Application to Adopt, Change, or Retain a Tax Year.

How to File Your Taxes When You’ve Changed Your Job

The key to filing your taxes when changing jobs is to take note of the essential tax forms that apply to your employment status and tax situation. If you’re an employee, make sure you receive your duly furnished Form W-2 from your employer.

Or, if you received nonemployee compensation within the year, you should expect to receive the correct 1099 form from your client, bank, or the entity responsible for your compensation.

While changing jobs does affect your tax returns, you will still follow the same tax filing process unless you switch from a full-time employee to a freelancer or a sole proprietor.

If so, then aside from ensuring your tax return reflects how you changed jobs, you must also allocate additional steps to prepare the correct tax form and calculate your self-employment earnings.

Better yet, get the help of a tax professional or make the most out of online and user-friendly tools, such as Paystub.org’s W-2 form and 1099 form generators! Our generators are 100% secure and easy to use.

Simply fill in the blank fields with the required information, along with your wages, tips, and all other applicable compensation and taxes. You can print a physical copy of your document or download a PDF form for e-filing purposes.

Final Thoughts

So, does changing jobs affect your tax return? Yes, and the impact can vary based on whether you get paid more in your new job, have contributed to a retirement account in your last job, or changed your employment status from an employee to a self-employed individual.

By learning how your career choices can affect your tax situation in the long run, you become well-equipped to make the necessary preparations in terms of your finances and compliance with the IRS regulations.

Does Changing Your Job Affect Your Tax Return FAQ

#1. If I quit my job, do I still get a tax return?

Yes, you will still get a tax return even if you quit your job. Your tax return summarizes all income paid to you and the taxes withheld from your earnings within the year.

It serves as your reference in calculating how much tax you still owe and assessing whether you qualify for certain tax deductions or a tax refund.

#2. Why does changing jobs affect my taxes?

Changing jobs affects your taxes or tax returns because of the possibility of owing the IRS more taxes. If your new job offers a significantly higher pay rate, then you may move up to a higher tax bracket and pay higher taxes.

Also, if you switch from a full-time employee to a freelancer or an independent contractor, then you must shoulder the full tax rates for Social Security and Medicare taxes.

#3. Does having multiple jobs affect my tax return?

Yes, having multiple jobs affects your tax return. You may be required to file more than one state return, particularly if you worked in different states or locations. If that is the case, then you also have to be mindful of the different state tax filing deadlines, aside from the due date for filing federal returns.