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What your teen should know about that summer job 

Posted on July 20, 2018

It might be your teen’s first job with a paycheck. It could involve serving and tip money, a paid internship, or a summer job at their university. Whatever the job, the IRS wants to make sure your student understands that they won’t see all the money they earn in every paycheck. That’s because employers must withhold taxes from the employee’s paycheck, even if they’ve never filed a tax return before.

That’s worth having a talk about.

Here are a few things your working teen should understand:  

  • When a potential taxpayer gets a new job, they need to fill out a Form W-4. Employers use this form to calculate how much federal income tax to withhold from the employee’s pay.
  • How much will be withheld depends on what your student claims. Check out the Withholding Calculator on gov to help your student determine what to claim.
  • Some payroll taxes pay for benefits under the Social Security system. While taxpayers 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.
  • Students who do odd jobs over the summer (such as babysitting, dog walking or lawn care) are considered self-employed so Social Security and Medicare taxes may still be due and are generally paid by your teen. Encourage him/her to keep good records.
  • Working as a waiter? Tips count — tip income is taxable income and subject to federal income tax. Any tips of $20 or more in any single month must be reported to the IRS.
  • If your son or daughter is in an ROTC program with active duty pay, such as pay for summer advanced camp, it is taxable. Other allowances your teen receives, such as food and lodging allowances, may not be taxable. The Armed Forces’ Tax Guide on gov has more details.

Paying taxes on that first paycheck is certainly an eye-opening experience, and an important one.

That’s why the CPAs at Teipen Selanders Poynter & Ayres encourage parents to sit down with their teen wage earners and explain the importance of good record keeping, the U.S. tax system, how it works, and what it pays for. The more they know now, the better prepared they will be when taxes are due next spring.