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If your teen has a summer job, read this.

Posted on August 25, 2017

Summer jobs are a great way for teens to earn spending money and help save for college. These jobs can also provide an ideal lesson in how income is taxed, say the CPAs at Teipen Selanders Poynter & Ayres, even when your student doesn’t earn a lot.

Here’s what you and your teen should know:

  • What a W-4 does – When anyone gets a new job, the first order of business is to fill out a Form W-4, an Employee’s Withholding Allowance Certificate.
  • Payroll taxes –This form is used by employers to calculate how much federal income tax to withhold from the employee’s pay – even if it’s a part time summer job.
  • How much will be taken out of your paycheck? By law, employers usually must withhold Social Security and Medicare taxes from every employee’s pay. Find out how much will be taken out ahead of time by going to IRS Withholding Calculator tool on gov. This information can help you understand how to fill out the form, too.
  • What if your teen is self-employed? Money earned from self-employment may be taxable, even if the jobs are baby-sitting or lawn care. Teens should be encouraged to keep thorough records on money received and expenses paid related to the work. The good news is that IRS rules allow some costs associated with self-employment to be deducted to determine the taxable income.
  • Tip income is taxable. Encourage your teen to accurately report tips of $20 or more in any single month to his/her employer.
  • ROTC Pay – If a taxpayer is in a ROTC program, active duty pay, such as pay for summer advanced camp, is taxable. Refer to IRS Publication 3 for details.
  • Consider using IRS Free File for your student. Although anyone can prepare and e-file their federal income tax return using IRS Free File on gov, it’s a great way for students to learn how the tax system works. For instance, your teen may want to file a tax return because they would be eligible for a tax refund or a refundable credit. IRS Free File provides helpful information on all these issues.

The CPAs at Teipen Selanders Poynter & Ayres want to help your student learn about earning and saving money, reporting income honestly, and about how the tax system works. We encourage parents and teens to visit IRS.gov for more about the tax rules for students. It’s a great way to learn “on the job”.