School's out, but the IRS has another lesson for students who will be starting summer jobs. Summer jobs represent an opportunity for students to learn about the tax system.
Not all of the money they earn will be included in their paychecks because their employer must withhold taxes.
Here are six things the IRS wants students to be aware of when they start a summer job.
- 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.
- 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.
- 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.
- Even if you do not earn enough money to owe income tax, you will probably have to pay employment taxes. Your employer will withhold these taxes from your paycheck. If you earn $400 or more from self-employment, you will have to pay self-employment tax. This pays for benefits under the Social Security system that are available for self-employed individuals the same as they are for employees that have taxes withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE, Self-Employment Tax.
- Food and lodging allowances paid to ROTC students in advanced training are not taxable. However, active duty pay - such as pay received during summer camp - is taxable.
- Special rules apply to services you perform as a newspaper carrier or distributor. You are treated as self-employed for federal tax purposes regardless of your age 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.
If you do not meet these conditions and you are under age 18, then you are generally exempt from Social Security and Medicare tax.
More information about income tax withholding and employment taxes can be found at IRS.gov, the official IRS website.
TaxACT helps you determine how much you should withhold and complete a Form W-4 you can print and turn into your employer. Simply sign in to your TaxACT Online account or start your desktop program and click on the blue "Next Year" tab.
- Form W-4, Employee's Withholding Allowance Certificate (PDF)