Tax Breaks For Summer Jobs
Now that summer is in full swing, your teen or new college grad may be knee-deep into their first job. Whether they’ve already signed on the dotted line or are still on the hunt, there may be several questions as to what they can expect come tax time.
W4s and Other Tax Forms
These days, going green is socially hip. Being green, on the other hand, is not and will likely cause inexperienced workers to miss the fine print during the hiring process. When accepting a new job, being clear about their hiring status is essential. Are they classified as employees or contractors? And will income tax return services require information reported on a W2 or 1099? Contractors, unlike employees, receive gross wages. And if a wage earner doesn’t understand the difference, an unpleasant surprise—in the form of a 1099—may be in the works. While income taxes don't usually kick in until earnings hit $5,800, wages over $400 are taxable. I am sure that the tax department will advise here. The kicker with a 1099 is that the employee pays ALL of the Social Security and Medicare taxes. Usually none have been withheld on a 1099, and as a contractor, there is no employer to submit half. These are called self-employment taxes. As for income tax, wages over $400 are usually not taxed, but must be filed if you are an independent contractor.
If their earnings for the year won't incur income taxes, he or she should submit a W4. This will allow them to claim an exemption for withholding and will avoid having to file a return to reclaim tax payments the following year. Get the tax department advice here, but I think you mean for them to submit a W-4 claiming tax exempt status.
With the unemployment rate at 17.3% for the 16-24 age demographic, most recent grads aren’t receiving a warm welcome into the real world. If your son or daughter’s bachelor’s degree helped them land a stellar job outside your hometown, congratulations are in order! While the costs they may have incurred to land the job are not tax deductible, relocation expenses are. From parking fees and toll costs, to transportation expenses and mileage, these deductions should be reported to their tax preparer. To qualify, the new gig must be at least 50 miles away from home, and the write-offs will be considered even if they don’t itemize.
Making Work Pay Credit
Most wage earners may have noticed a slight increase in their net pay as a result of recent tax revisions to institute the Making Work Pay Credit. If their paycheck is subject to withholding, no action is required to receive the credit. Workers who don’t have taxes deducted from their checks can claim the credit on their tax return. Estimated at roughly 6% of your income, the credit caps at $400 for single filers. So even if Junior is works a part-time job and earns at least minimum wage, he or she will likely qualify for the credit. Again, see the tax department, but I believe this credit ended 12/31/10. Wage earners feeling an increase in pay are currently feeling the effects of a new requirement for employers to temporarily pick up more than half of FICA (Social Security + Medicare tax).
Liberty Tax professionals (hyperlink to www.libertytax.com to find an office near you) can be contacted summer, winter, spring, or fall. Contact your nearest tax office with any lingering questions regarding this or any other tax-related matters.