Summer vacation is finally here! For some that means travelling with the family and for others it means that it is time to get to work! Summer jobs might be hard to come by, but if you are lucky enough to land one of those summer gigs, either at the pool or working for a local restaurant, here are some tips to make sure you don’t end up on Uncle Sam’s after school detention list!
If this is your first job then here are some things you need to know! You don’t get to keep all of your money! That’s right, Uncle Sam, also known at the IRS, is going to keep its portion of money. This is how our military is funded among other useful and wasteful spending items.
If you have landed a full-time job, make sure you stop into your local Liberty Tax® office as we will have recommendations for great financial counselors in the area that can help you eliminate debt, plan for your financial future, and get on a step-by-step plan with your new income.
Here are six things the IRS wants students to be aware of when they start a summer job.
1. When you first start a new job you must fill out a Form W-4, Employee's Withholding Allowance Certificate. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. If you have multiple summer jobs, make sure all your employers are withholding an adequate amount of taxes to cover your total income tax liability. To make sure your withholding is correct; try using this Withholding Calculator.
2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tips you receive are taxable income and are therefore subject to federal income tax.
3. Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment - including jobs like baby-sitting and lawn mowing - are subject to income tax.
4. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed the same as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
5. Food and lodging allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay - such as pay received during summer advanced camp - is taxable.
6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:
- You are in the business of delivering newspapers.
- All your pay for these services directly relates to sales rather than to the number of hours worked.
- You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.
We expect that you may have some questions. Stop in at your local Liberty Income Tax professional - taxes can be confusing, but we want to make it simple.
Disclaimer: Every effort has been taken to provide the most accurate and honest analysis of the tax information provided in this blog. Please use your discretion before making any decisions based on the information provided. This blog is not intended to be a substitute for seeking professional tax advice based on your individual needs.