As the school year comes to a close, many students will turn their attention to earning some extra cash for the summer. Many will earn a paycheck through a part- or full-time job with a local employer. Others may earn money doing odd jobs for cash, such as mowing lawns or babysitting. Regardless of which type of employment they choose, these IRS tax tips for students with summer jobs are important to follow.
Most employees – including students – typically have taxes withheld from their paychecks by their employer. When your child gets a new job, they need to fill out a Form W-4, Employee’s Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from your child’s pay. You can also use our Tax Withholding Calculator to help your child fill out this form.
Students who do odd jobs over the summer to make extra cash are considered self-employed. This includes jobs like babysitting, lawn care, and pet care. Money earned from self-employment is taxable. Self-employed students may be responsible for paying taxes directly to the IRS. One way they can do this is by making estimated tax payments during the year. If you’re not sure if your child will owe taxes, take the short survey on IRS.gov, “Do I Have Income Subject to Self-Employment Tax?”
Students working at restaurants or other places where they may earn tips as part of their summer income should know tip income is taxable. We suggest keeping a daily log to accurately report tips. Students must report cash tips to their employer for any month that totals $20 or more. For additional information, be sure to check out “Is My Tip Income Taxable?”
This tax pays for benefits under the Social Security system. Although students may earn too little from their summer job to owe income tax, employers are typically required to withhold Social Security and Medicare taxes from their pay. If a student is self-employed, Social Security and Medicare taxes may still be due and should be paid directly to the IRS. Anyone who is self-employed and has net earnings of $400 or more must pay these taxes and file a tax return.
Reserve Officers’ Training Corps (ROTC)
If your student is in an ROTC program and receives pay for activities such as summer advanced camp, it is taxable. Other allowances they may receive – like food and lodging – may not be taxable. The Armed Forces’ Tax Guide on IRS.gov provides additional details.
Family Business Exemption
If your child is under 18 and works for the family’s trade or business, they are not subject to Social Security and Medicare taxes. The trade or business must be a sole proprietorship or a partnership in which each partner is a parent of the child. Payments for the services of a child under age 21 who works for his or her parent in a trade or business are not subject to Federal Unemployment Tax Act (FUTA) tax. Payment for services is subject to income tax withholding, however, regardless of your child’s age.
Even if your child is not required to pay federal taxes, be sure to check with your state’s income tax rules and requirements to ensure your child does not get hit with an unexpected tax bill.