Many students take a job in the summer after school lets out. If it’s your first job it gives you a chance to learn about the working world. That includes taxes we pay to support the place where we live, our state and our nation. Here are ten things that students who take a summer job should know about taxes:
- Money you earn doing work for others is taxable. Some work you do may not be considered as employment by a business but nevertheless still be taxable as self-employment income. This can include jobs like baby-sitting, lawn mowing or computer repair, where your services are provided to non-employers or to multiple individuals and employers alike. There are special rules applicable to federal and state income taxes when you are still a dependent of someone else. See the instructions for such situations.
- Do not be surprised when your employer withholds taxes from your paychecks. That is how you pay your taxes when you are an employee. As a new employee, you will need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Your employer will use it to figure how much federal income tax to withhold from your pay. The IRS Withholding Calculator tool on IRS.gov can help you fill out the form to be sure that enough is taken from your pay but not too much.
- Keep in mind that all tip income is taxable. If you get tips, you must keep a daily log so you can report them. You must report $20 or more in cash tips in any one month to your employer. And you must report all of your yearly tips on your federal, state and local income tax returns.
- If you are in ROTC, your active duty pay, such as pay you get for summer camp, is taxable; however, a subsistence allowance you get while in advanced training is not taxable.
- If you are a newspaper carrier or distributor, special rules apply. If you meet certain conditions, you are considered self-employed. If you don’t meet those conditions and are under age 18, you are usually exempt from Social Security and Medicare taxes.
- If you are self-employed, you may have to pay federal estimated taxes to cover not only your federal income tax but your self-employment tax. Estimated tax payments are also required for state and local tax purposes. These estimated taxes are required to be paid on certain dates during the year and there are penalties associated with failure to pay these estimated taxes by the required due dates.
- When self-employed, you should also be sure to keep good records of expenses related to your work because you will be able to deduct (subtract) those costs in determining your taxable income. These deductions may help lower not only your federal income tax and self-employment tax, but also your state and local income taxes.
- You may not earn enough to owe federal income tax. However, these earnings count toward your coverage under the Social Security system and your employer usually must withhold Social Security and Medicare taxes from your pay even if the amount of your earnings is insufficient to require federal income tax to be withheld. If you’re self-employed, you may have to pay them yourself [see estimated taxes above].
- Even when the tax is withheld from your paycheck or paid in by estimated tax payments you are still not finished with your tax reporting obligations. If your income is of a sufficient amount you are still required to file an annual income tax return for federal, state and local purposes when you are an employee and when you are self-employed. See the federal, state and local filing instructions to determine the filing threshold requirements.
- Even when you have not earned enough to be required to file a tax return you may still wish to do so because if your employer withheld income tax from your pay you will have to file a tax return to receive a refund of the amounts withheld. You can prepare and e-file your federal tax return for free using IRS Free File at IRS.gov.
Additional resources about taxes for students available from the IRS:
- tax rules for students
- Student’s Page – High School
- Student’s Page – Higher Education
- Part-Time and Summer Jobs – English YouTube Video
- Withholding Calculator – English YouTube Video
DISCLAIMER: This information is extracted with permission from IRS releases. We are not responsible for the application of this general information to the specific circumstances of a reader unless we have been engaged as the reader’s tax return preparer.
ASSISTANCE: If you need help in the preparation of a student tax return Roy & Associates, PC will be able to provide assistance. Our firm and its predecessor firms have been providing tax services to individuals, small businesses and nonprofit organizations in southwestern Pennsylvania since 1942. You may make an appointment with one of our Directors of Audit and Tax Services, all of whom are well-versed in personal income taxation. See the CONTACTS page above. Although standard rates and terms for service apply to our income tax services, we do provide a student discount.