Summer is here and that means sun, fun and work. That’s right, work. Last summer nearly 20 million students 16-24 held jobs during the summer months. Summer jobs are a great way to learn responsibility and get an introduction to valuable life lessons like filing taxes. Generally students must file taxes on their income earned during the summer and here are some tips to keep in mind.
1. As a new employee, you’ll need to fill out a W-4 Form also known as an Employee’s Withholding Allowance Certificate. It’s important to complete this form correctly so your employer withholds the right amount of taxes.
2. All tips you receive are taxable. If you receive $20 or more in cash tips in any one month, you must report the tips for that month to your employer.
3. Self-employment jobs such as mowing the lawn, babysitting, or designing websites are subject to income tax. However, you may deduct businesses expenses for these types of jobs when you file your taxes. For example, if you mowed lawns for the summer and you bought a lawn mower for this sole purpose, you may deduct the cost of the lawn mower. It is important to keep an accurate record of any planned deductions.
4. If your self-employment earnings are more than $400 you are required to file a tax return. In some cases you may not make enough to owe income tax, however you will most likely have to pay Social Security and Medicare taxes.
5. There are very few exceptions to earning income that would be nontaxable. For example, if you are in ROTC (Reserve Officers’ Training Corps), your active duty pay, such as pay received during summer camp, is taxable. However, the food and lodging allowances you receive in advanced training are not.
6. If you are a newspaper carrier or distributor, special rules apply to your income. No matter your age, you are treated as self-employed for federal tax purposes if:
You are in the business of delivering newspapers.
Substantially all your pay for these services directly relates to sales rather than to the number of hours worked.
You work under a written contract that states the employer will not treat you as an employee for federal tax purposes.
Note: For Bullet 6, if you do not meet these conditions and you are under age 18, then you are usually exempt from Social Security and Medicare tax.