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Parents' Guide: Summer Jobs & Taxes

 

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If you’re the parent of a high school or college student, chances are your kid has a summer job.  If so, chances are they don’t necessarily know what they’re doing when it comes to taxes. They probably don’t understand how their taxes can affect you as a parent, or their own finances as they transition into adulthood.

Here’s what you BOTH need to know about paying taxes on summer jobs:

  • All taxpayers, including students, must fill out a W-4 when starting a new job.  This form is used to determine the amount of tax that will be withheld from each paycheck.  It is important that both you and your child understand what is being withheld and how it will affect your child’s income.

*Side note: if your child has multiple summer jobs, make sure they receive and fill out a W-4 for each position.  This is the only way to ensure that your child’s employer is withholding an adequate amount of taxes to cover their total income liability tax.

  • If your child receives tips on the job, they must be reported.  ALL tip income is taxable and therefore subject to federal income tax. 
  • If your child is self-employed, (i.e. babysitter, lawnmower, etc.,) it may just seem like extra cash. However, these earnings are also subject to income tax and should be tracked.

*Another side note: if your child is “self-employed” and has net earnings of $400 or more, he or she is also liable to pay self-employment tax, which pays for benefits under the Social Security system including Medicare and, of course, Social Security.  To file self-employment tax you would need Form 1040, Schedule SE.

  • If your child is an ROTC student participating in advanced training, their subsistence allowance is not taxable.  However, active duty pay – such as pay received during summer advanced camp – is taxable.
  • If your child is performing services, such as a newspaper carrier or distributor, he or she is considered a direct seller.  This means that they will be treated as being self-employed for federal tax services, if the following conditions are met:
-All pay for these services directly relates to sales rather than to the number of hours worked
-Delivery services are performed under a written contract which states that your child will not be treated as an employee for federal tax services.
(Please note: generally children under the age of 18 are NOT subject to self-employment tax)

Often times a student’s summer employment consists of multiple part time gigs, which understandably makes the tax process quite confusing.  With that being said, please don’t hesitate to contact our office if you have ANY questions or concerns!

Topics: Tax Tips