With teen employment expected to be plentiful this summer, with better pay and more opportunities, chances are good that your high school or college student will have a job this summer. Here’s what they should know about summer jobs and taxes:
Form W-4
When anyone gets a new job, they need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from the new employee’s pay. The Withholding Calculator on IRS.gov helps taxpayers fill out this form.
Wages
While students may earn too little from their summer job to owe income tax, employers usually must still withhold Social Security and Medicare taxes from their pay. Generally, they will receive that money back as a refund if they file a federal and state tax return next spring.
Tip Income
If your child is working in the service industry, tips are often a vital part of their income; they may receive tips as part of their summer income. Tip income is taxable and is therefore subject to federal income tax, and students should understand the tax obligations that come with tip income. Here’s what to keep in mind, so students don’t receive a surprise tax bill:
- You must pay federal income tax on any tips you receive. The value of noncash tips, such as tickets, passes, or other items of value, are also subject to income tax.
- You must include the total of all tips you received during the year on your income tax return, such as tips received directly from customers, tips added to credit, debit, or gift cards, and your share of tips received under a tip-splitting arrangement with other employees.
- If you receive $20 or more in tips in any one month from any one job, you must report your tips for that month to your employer. The report should only include cash, check, debit, and credit card tips you receive. Your employer must withhold federal income, Social Security, and Medicare taxes on the reported tips. Do not report the value of any noncash tips to your employer.
- You should keep a daily tip record. One way to do this is to use the forms in IRS Publication 1244, Employee’s Daily Record of Tips and Report to Employer:
Form 4070-A, Employee’s Daily Record of Tips – to document a daily record of tip income. Form 4070 (PDF), Employee’s Report of Tips to Employer – to report tips received to their employer including cash tips, tips received from other employees, and debit and credit card tips.
Income from Odd Jobs
Many students take on odd jobs such as babysitting or mowing lawns over the summer to make extra cash. If this is your child’s situation, you should keep in mind that earnings are considered income from self-employment. If a student is self-employed, Social Security and Medicare taxes may still be due and are generally paid by the student.
Self-employment Tax
If your child has net earnings of $400 or more from self-employment, they also have to pay self-employment tax. Anyone with church employee income of $108.28 or more must also pay self-employment tax. This tax pays for benefits under the Social Security system. Social Security and Medicare benefits are available to self-employed individuals just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages.
Reserve Officers’ Training Corps (ROTC) Pay
If your child participates in advanced training as an ROTC student and receives a subsistence allowance for food and lodging, it is generally not taxable. For example, active duty pay, pay received during a summer advanced camp, is taxable, however.
Questions?
If you have any questions about a student’s summer job income, don’t hesitate to call.