Editor’s note: This is a guest post from Michael Raanan, MBA, EA. Michael is a former IRS revenue officer and current owner of Landmark Tax Group, a professional tax firm specializing in tax preparation and assisting taxpayers with their IRS and state tax disputes.
Planning a summer job during your break from school? That's great, but keep in mind that you do have to pay taxes on the money you earn from that job. Here are a few tips about earning money and paying taxes.
1. As a new employee, you'll need to fill out a Form W-4, Employee's Withholding Allowance Certificate. Employers use this form to figure how much federal income tax to withhold from workers' paychecks. It is important to complete your W-4 form correctly so your employer withholds the right amount of taxes. You can use the IRS Withholding Calculator tool at IRS.gov to help you fill out the form.
2. If you'll receive tips as part of your income, remember that all tips you receive are taxable. Keep a daily log to record your tips. If you receive $20 or more in cash tips in any one month, you must report your tips for that month to your employer.
3. Maybe you'll earn money doing odd jobs this summer. If so, keep in mind that earnings you receive from self-employment are subject to income tax. Self-employment can include pay you get from jobs like babysitting and lawn mowing.
4. You may not earn enough money from your summer job to owe income tax, but you will probably have to pay Social Security and Medicare taxes. Your employer usually must withhold these taxes from your paycheck. Or, if you're self-employed, you may have to pay self-employment taxes. Your payment of these taxes contributes to your coverage under the Social Security system.
5. If you're in ROTC, 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're a newspaper carrier or distributor, special rules apply to your income. Whatever 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.
If you do not meet these conditions and you are under age 18, then you are usually exempt from Social Security and Medicare tax.
Now that you're working this summer, you may be wondering whether you'll have to file a tax return. The answer depends on a number of factors from how much you're making to whether or not your parents claim you as their dependent.