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June 17 is Tax Day for millions

A mini tax primer for students with summer jobs

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School’s out for the summer. That means many young people are working summer jobs.

If it’s your first time in the workplace, congratulations on your earnings effort. And good luck with the tax lessons you’re about to learn.

Here’s a quick CliffsNotes on paychecks and taxes.

Income Tax Withholding: Getting your first paycheck is reason for celebration. That joy, however, tends to be offset a bit when you realize that Uncle Sam, and probably your state tax collector, too, took some off the top.

That’s the income tax withholding that all wage-earning workers face. All.

Every summer I get asked, is it true that students are exempt from income tax withholding? The answer, just like in prior summers, is no. Students are not automatically exempt from withholding.

Yes, some young workers might — might — be exempt. But not automatically, and not all of them. More on this in a minute.

As for the young workers facing income tax withholding, the amount taken out of your checks each pay period is based on the information you provide your employer’s payroll office. Specifically, your workplace uses your Form W-4, Employee's Withholding Allowance Certificate, to calculate how much federal income tax to withhold from your pay.

If you’re just now working on your W-4, or want to double check what you gave your boss, click on over to the Internal Revenue Service's online Withholding Estimator. It can help you enter the correct withholding information on the form. This is particularly helpful if you have multiple wage-paying summer jobs.

Now for that income tax withholding exemption possibility. You can claim exemption from income tax withholding on your W-4 if you meet the two following conditions:

  1. You owed no federal tax in 2023, and
  2. You expect to owe no federal tax in 2024.

How do you answer #2? Look at the IRS filing requirements. The flow chart below from IRS Publication 505 takes you through the considerations.

IRS Pub 505 exemption from withholding flowchart
See more tax forms and publications, and more about them, at Tax Forms 2024.

Publication 505 also offers examples of other types of income that young people, and their parents, need to consider when it comes to taxes.

But the bottom line vis-à-vis summer jobs is that a dependent child, which is the case for most teenage summer workers, who earns $14,600 or less this year generally doesn’t have to file a tax return next filing season.

If that’s the case, and you didn’t have any tax liability in 2023, you can consider claiming the income tax withholding exemption on your W-4.

Federal Insurance Contributions Act (FICA): This is different set taxes taken from your paycheck in addition to income tax withholding. These FICA taxes go toward the Social Security and Medicare programs.

There is no escaping these withheld amounts. The possible tax exempt status that applies to income tax withholding does not extend to FICA collections, which total 15.3 percent.

The Social Security component, which applies to the annual Social Security wage base amount, is 12.4 percent. The remaining 2.9 percent is for Medicare. Each of those amounts is paid equally by workers and employers.

That means most wage-earning workers have 6.2 percent taken from all checks each pay period for Social Security, and 1.45 percent for Medicare.

Self-Employment Tax: The first jobs for many students, both summer and during the school year, are things such as lawn care, baby-sitting, gig economy jobs such as making deliveries, and tutoring, both classmates and adults who, for example, need some help with technology’s intricacies.

Money made from self-employment endeavors is taxable. And when the amount of self-employment income reaches $400 or more, all enterprising workers, teenage and older, generally must pay self-employment tax directly to the IRS.

Yep, even if your being-the-boss job doesn’t technically make you enough money to require you file a tax return, you still have to file in order to pay the self-employment (SE) tax on your independent earnings. The tax due here, calculated on Schedule SE, is the self-employed person's version of the FICA payroll taxes that are withheld from salaried workers’ paychecks.

Again, it bears repeating. It's possible you could owe SE taxes, but no income tax. However, you still must file to report those independent earnings.

One way to meet your SE tax liability is to make estimated tax payments during the year.

Tip Income Taxes: Lots of workers, students and otherwise, earn tips as part of their income. These gratuities, year-round, are taxable income.

Yes, I know presumptive Republican presidential candidate Donald J. Trump told a crowd in Las Vegas, a town full of tip-collecting service workers, that he would make such income tax free. It’s not a new idea. Sen. Rand Paul (R-Kentucky) proposed the same tax break during his 2014 presidential run while — wait for it — at a Las Vegas campaign stop.

While such promises make good political soundbites, remember that even if Trump is elected, all he can do taxwise is propose his tips tax exemption. Only Congress can make tax laws. So don’t get your hopes too high. And for this tax year, you’ll still owe tax on your tips.

In fact, today is an important day for tip earners. On the 10th of each month, if received at least $20 in gratuities for your extraordinary services as a food server or hair stylist or parking valet or whatever job where tipping is common, you must report that amount to your employer.

To ensure that reported amount is correct amount, you need to keep good records of your tips. The IRS suggests a daily log a la Form 4070.

I hope this paycheck tax mini-primer helps you decipher your pay stubs, or self-employment income if you’re going that route, and understand the tax implications of your hard work.

I know, it’s a pain to have to pay taxes, especially when they reduce the amount of your take-home pay. But be proud you got a job, and make the most out those earnings, this summer and for years to come.

You also might find these items of interest:



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Debbie, Thanks for reading and for your question. The flowchart actually doesn't flow that smoothly. The issue for a tax dependent who works and wants to claim exemption from withholding also takes into account unearned income, like investments and savings earnings.

If you follow the boxes down the left side, and answer "yes" to the dependent claim one, the next (third) down box asks if your income will be more than $1,300. A "no" takes the young dependent worker to the far right/bottom box saying the youngster can claim exemption from withholding. But if the tax dependent worker answers "yes" they will make more than $1,300 from a job, the chart then takes you to 4th box down on the left side, which asks about investment (unearned) income.

If the dependent young person has more than $450 in unearned income, that tax dependent cannot claim exemption from withholding. But if the young tax dependent worker doesn't have more than $450 in unearned income, the arrow goes to the middle, bottom-of-the-page box that asks whether the young worker will make $14,600 or less.

Tax dependent working youths who make more than $14,600 in 2024 cannot claim the withholding exemption. But if they make $14,600 or less, then that answer take you to the "You CAN claim exemption from withholding" box.

I hope this helps. And again, thanks for reading. Kay

Debbie M

You say "a dependent child, which is the case for most teenage summer workers, who earns $14,600 or less this year generally doesn’t have to file a tax return next filing season." But the chart makes it look like that's the limit for *independent* children, and that the limit for dependent children is only $1,300. I think of most "teenagers" as still being dependent. Am I missing something?

Jimmy Niemann

The link for Form 4070 is broken. It yields an 'Error 404. Page not found.'

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