School’s out and many students will be starting summer jobs. The Internal
Revenue Service reminds students that not all the money you earn may make it to
your pocket. That’s because your employer must withhold taxes.
Here are six things the IRS wants students to be aware of when they start a
summer job.
1. When you first start a new job you must fill out a Form W-4, Employee’s
Withholding Allowance Certificate. This form is used by employers to determine
the amount of tax that will be withheld from your paycheck. If you have
multiple summer jobs, make sure all your employers are withholding an adequate
amount of taxes to cover your total income tax liability. To make sure your
withholding is correct, use the Withholding Calculator on www.irs.gov.
2. Whether you are working as a waiter or a camp counselor, you may receive
tips as part of your summer income. All tips you receive are taxable income and
are therefore subject to federal income tax.
3. Many students do odd jobs over the summer to make extra cash. Earnings
you receive from self-employment – including jobs like baby-sitting and lawn
mowing – are subject to income tax.
4. If you have net earnings of $400 or more from self-employment, you will
also have to pay self-employment tax. This tax pays for your benefits under the
Social Security system. Social Security and Medicare benefits are available to
individuals who are self-employed the same as they are to wage earners who have
Social Security tax and Medicare tax withheld from their wages. The
self-employment tax is figured on Form 1040, Schedule SE.
5. Food and lodging allowances paid to ROTC students participating in
advanced training are not taxable. However, active duty pay – such as pay
received during summer advanced camp – is taxable.
6. Special rules apply to services you perform as a newspaper carrier or
distributor. You are a direct seller and treated as self-employed for federal
tax purposes if you meet the following conditions:
- You are in the business of delivering newspapers.
- All your pay for these services directly relates
to sales rather than to the number of hours worked. - You perform the delivery services under a written
contract which states that you will not be treated as an employee for
federal tax purposes.