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If you are a student working your first summer job, here’s a look at taxes

Posted on August 8, 2021

If you are a young person working a summer job, you may not know what you need to know – that students owe taxes on their earned income – yes, even if it goes toward college expenses.

Not all the money students earn will make it to their pocket because employers must withhold taxes from their paycheck.

The basics, explained:

  • Employees – including those who are students – normally have taxes withheld from their paychecks by their employer. How is this done? When anyone gets a new job, they need to fill out a Form W4Employee’s Withholding Allowance Certificate, and submit it to their employer.
  • Employers use this form to calculate how much federal income tax to withhold from the new employee’s pay. The IRS Withholding Estimator can help first-time taxpayers fill out this form.

What about self-employment?

  • Students who take on jobs like baby-sitting, lawn care orgig economy work are generally self-employed. Money earned from self-employment is absolutely taxable, and workers may be responsible for paying taxes directly to the IRS.
  • One way they can do this is by makingestimated tax payments during the year.

Tip income:

  • Students who earn tips as part of their summer income should know tip income is taxable.
  • Make sure to keep a daily log to accurately report tips — and report cash tips to their employer for any month that totals $20 or more.

Payroll taxes:

  • This tax pays for benefits under the Social Security system. While that may not be important to students now, it sure will in the future! Although students may earn too little from their summer job to owe income tax, employers usually must still withholdSocial Security and Medicare taxes from their pay.
  • If a student is self-employed, Social Security and Medicare taxes will still be due and are generally paid by the student.

If your student needs more information, we’d be happy to help. Call us and put your teen on the phone and we’ll help explain how the tax system works – as cheerfully as possible.