Earning your first paycheck can be an exhilarating yet eye-opening experience. If you are employed for the first time the realities of the working world will begin to be clearer including how taxes are paid to support the place where you live your state and your nation. Here are eight things you should know about taxes when starting your first summer job.
- As an employee taxes will be withheld from your paycheck by your employer. That’s how you pay taxes when you’re an employee. If you are self-employed estimated taxes may need to be paid directly to the IRS on specified days throughout the year.
- New employees will fill out a Form W-4 Employee’s Withholding Allowance Certificate. Your employer will use this to figure how much federal income tax to withhold from your pay. Employees can use the IRS Withholding Calculator tool or IRS.gov to help you complete the form.
- If you earn tips that income is also taxable so you must keep a log so that can be reported. Any cash tips of $20 or more in one month must be reported to your employer and you must report all of your yearly tips on your tax return. Any subsistence allowance you get while in advanced training is not taxable.
- All money you earn doing work for others is taxable. Some work you do for others may be considered self-employment including babysitting and lawn mowing. Keep good records of expenses related to your work and you may be able to deduct (subtract) those costs from your income on your tax return. Deductions may help lower your taxes.
- If you serve in the ROTC your active duty pay such as pay you get for your summer camp is taxable. A subsistance allowance you get while in advanced training is not taxable.
- Not everyone earns enough in their summer job to owe income tax but your employer must still withhold Social Security and Medicare taxes from your pay. If you are self-employed you may have to pay these taxes yourself but they will count toward your coverage under the Social Security system.
- Newspaper carriers or distributors have special rules that apply. If you meet certain conditions you are considered self-employed. If you don’t meet those conditions and are under 18 you are usually exempt from Social Security and Medicare taxes.
- You may not earn enough money from your summer job to be required to file a tax return. Even if you don’t you may still want to file. For example if your employer withheld income tax from your pay you will have to file a return to get your taxes refunded. You can prepare and e-file your tax return for free using IRS Free File which is available exclusively on IRS.gov.
For more information on tax rules for students visit IRS.gov or schedule a short consultation with Lindemeyer CPA. Our office of seasoned Louisville tax accountants can walk you through the beginning process of becoming a new employee and how/if you will need to file taxes.