Teenagers, taxes and summer jobs
Friday, July 05, 2013
If your kids are too old for day camp, then maybe they a job to fill their class-free summer hours is a good idea.
Not only will it teach your teen responsibility and help develop a healthy work ethic, it will provide them with some pocket money.
And it also could provide some valuable tax lessons.The traditional teen summer job tax connection is this week's Weekly Tax Tip.
Generally, the Internal Revenue Service wants its share of all earners income, regardless of age. That generally leads to the young worker's the first hard tax realization: Just who the heck is this FICA dude and why is getting so much of my pay?!
Then there's the follow-up tax lesson when filing season rolls around next year.
But some special tax rules apply to young workers, based not only on age, but also on amount of money earned and even the type of job the young worker holds.
Typically, a teen who's a dependent on someone else's tax return doesn't have to worry about filing until he or she earns more than the standard deduction amount for a single taxpayer. For the 2013 tax year, that's $6,100.
Here are five more things that the Internal Revenue Service wants young people to know about summer jobs and taxes.
1. Job paperwork
As a new employee, you’ll need to fill out a Form W-4, Employee's Withholding Allowance Certificate. The information here will determine how much federal income tax will be withheld from your paychecks. The IRS' online Withholding Calculator can help you fill out the form.
If you receive tips as part of your income, remember that all tips 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. Self-employment taxes
If instead of one summer job you have several, such as teaching adults in your neighborhood how to use social media or tutoring fellow classmates for whom calculus doesn't come as naturally as it does to you. That makes you an independent contractor.
And the money you earn as your own boss is subject not only to income tax, but also to self-employment, or SE, tax if you make more than $400. SE taxes go toward your future coverage under the Social Security and Medicare systems.
4. ROTC pay
If you're in Reserve Officer Training Corps (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.
5. Tax treatment of traditional teen jobs
Some traditional jobs for young workers, such as mowing lawns, babysitting and delivering newspaper, are treated differently when it comes to SE taxes. In these areas, workers younger than 18 are usually exempt from SE tax.
One final word for young workers: Filing.
While it can be a hassle to fill out a tax return, even the easiest Form 1040-EZ that most young workers will file, it sometimes is worth doing. If you had too much money withheld from your summer job paychecks, the only way you can get that cash back as a refund is to file a return.You also might find these items of interest:
- Teens, taxes and summer jobs: 2010, 2011 and 2012
- The connection between filing status and tax dependents
- IRS offers online help to students, and their parents, in filling out FAFSA
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