As a federal employee, you may already earn a great income; however, you might want to increase your earnings. Perhaps you're planning for a special event, considering a dream vacation, or looking to enhance your retirement savings.
Can federal employees take advantage of side gigs for extra income? Yes, but there are important guidelines to consider. Before starting work as an Uber driver, dog-walker, or online instructor, here’s what you need to know.
Rules and Regulations
The key requirement for federal employees considering side work: it may not conflict with your government responsibilities. Examples of this include:
- Selling products or services to the federal government
- Using federal government resources (office space or supplies) to support your second job
- Working with a company that does business with your agency
- Working with a company whose operations are regulated by your second business
You're probably okay if you’re considering a side gig as a ride-share driver. The same is true if you’re considering working as an online instructor in a field unrelated to your government career. Making and selling crafts on Etsy is also fine if you aren’t using resources or taking time from your federal job.
What to Know About Side-Gig Pay
Here are a couple of things to understand about the extra money you earn from your part-time job.
Government pay classifications and retirement annuities
If you’re concerned that your side gig will put a crimp in your government pay classification, don’t. What you earn in that second job doesn’t directly impact your pay classification. The latter is based on your agency job and performance rather than your total income.
The same is true regarding how much you receive when you leave your federal job. Only the income from your government career counts toward the “High-3” salary used to calculate your retirement annuity and other benefits.
Taxes and deductions
A primary side-gig consideration is self-employment taxes.
You must report any supplementary income above $400 to the IRS. You must also pay self-employment taxes at a rate of 15.3%. Furthermore, you’ll have to file quarterly estimated taxes.
To understand how much to send to the IRS every three months, figure out your anticipated adjusted gross income, then divide it by four. Then, plan to set aside about one-third of that amount for estimated payments.
On the positive side, you can take deductions for your side gig, which can lower your taxable income. These include supplies, mileage, home office, professional fees and others. Be sure to keep careful records of income and expenses.
Learn more about your retirement benefits at our No-Cost webinars, featuring Ed Zurndorfer -
Side-Gig Money and Retirement Goals
There are a couple of ways to use that extra money to boost your retirement resources:
Thrift Savings Plan (TSP) contributions
Earning money from a side gig means you can contribute more of your federal government paycheck to your TSP. This helps the account grow and provides more retirement funding.
IRAs and SEPs
If you’ve maxed out your TSP contributions, consider opening a Roth IRA and parking your extra earnings there. You can use the additional income to fund that IRA with $7,000 (if under 50 years old) or $8,000 (if older than age 50), assuming that your Modified AGI is under the limit to make direct contributions to a Roth IRA.
If you’ve maxed out your Roth IRA but still have extra money, you can place it into a Simplified Employment Plan (SEP) to further boost your retirement resources. Feeling okay for retirement? You could also invest your side-gig income in a brokerage account to promote tax flexibility in the future since brokerage account earnings from investments held for over one year are taxed at a flat long-term capital gains tax rate (15% for married filing jointly filers making between $94,051 and $583,750 in taxable income).
Staying Within the Guidelines
To ensure that you’re staying within federal guidelines of your side gig (and that it won’t impact your job), be sure to do the following:
Check your department’s policies. Some government agencies have stricter rules regarding moonlighting for extra money. You should know those rules before determining whether you can take a side gig.
Discuss it with your supervisor. Full disclosure of your intentions is necessary for part-time work outside your full-time job. Telling your boss upfront what’s going on will prevent problems down the road.
Ensure there is no conflict of interest. Even the most innocuous activity — like writing for a publication criticizing the government — could be grounds for loyalty conflicts. Understand what constitutes a competing interest and how to avoid it.
Keep records of everything related to your side gig. You might need to pay taxes on what you earn, so be diligent about recording your income and expenses, as well as filing what’s needed with the IRS.
Optimize Your Income to Fund Your Future
It is possible to be a government worker with a side income, as long as you adhere to your agency’s guidelines and understand the taxes involved. That extra income can help pay off debts, fund a vacation, or turbocharge your retirement.
For assistance in managing your full-time and part-time finances, contact the Serving Those Who Serve team by emailing [email protected] to book a free financial planning consultation.
The information has been obtained from sources considered reliable but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of Serving Those Who Serve writers and not necessarily those of RJFS or Raymond James. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Investing involves risk and you may incur a profit or loss regardless of strategy suggested. Every investor’s situation is unique and you should consider your investment goals, risk tolerance, and time horizon before making any investment or financial decision. Prior to making an investment decision, please consult with your financial advisor about your individual situation. While we are familiar with the tax provisions of the issues presented herein, as Financial Advisors of RJFS, we are not qualified to render advice on tax or legal matters. You should discuss tax or legal matters with the appropriate professional. **
