Tax Tips for Students With a Summer Job

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Any bookkeeping, business or tax article contained in this communication, including attachments and enclosures, is not intended as a thorough, in-depth analysis of specific issues, nor a substitute for a formal opinion, nor can it be used to avoid tax-related penalties. If desired, we would be pleased to perform the requisite research and provide you with a detailed written analysis. Such an engagement may be the subject of a separate engagement letter that would define the scope and limits of the desired consultation services.

Whether the goal is to gain experience or earn some spending money or help pay for college, summer is the prime job season for teens and college students. This year, however, with the coronavirus pandemic, the job situation has not been as easy – not to mention that it is starting later than usual. Nonetheless, if you are a high school or college student (or the parent of one) who has been lucky enough to find summer employment, here’s what you should know about income earned during the summer months

  1. All new employees fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. Form W-4 was revised for 2020. If you have questions about how to fill out this form, don’t hesitate to call.
  2. From pet sitting to mowing lawns and pulling weeds, many students do odd jobs over the summer to make extra cash. If this is your situation, keep in mind that the earnings you receive from self-employment are subject to income tax.
  3. Net earnings of $400 or more from self-employment is taxable, as is church employee income of $108.28 and is reported on Form 1040, Schedule SE. Social Security and Medicare benefits are available to individuals who are self-employed just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages.
  4. If you hire your child under age 18 to work in a trade or business you own, he or she is not subject to social security and Medicare taxes if it is 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 the Federal Unemployment Tax Act (FUTA) tax. However, payment for the services of a child are subject to income tax withholding, regardless of age, but only to the extent that the amount paid exceeds the standard deduction amount for the year, which in 2020 is $12,400.
  5. When you work in some jobs such as a waiter, valet, or even a camp counselor, you may receive tips as part of your summer income. You should be aware that tips are considered taxable income and subject to federal income tax. Employees should keep a daily log to accurately report tips and they must report cash tips to their employer for any month that totals $20 or more.
  6. While some students may earn too little from their summer job to owe income tax, employers usually must still withhold Social Security and Medicare taxes from their pay. This tax pays for your future benefits under the Social Security system.
  7. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pays such as pay received during summer advanced camp is taxable.
  8. Special rules apply to services you perform as a newspaper carrier or distributor. Please call the office if you’d like more information about this.

Summer work for students can be a patchwork of odd jobs, which makes for confusion at tax time. Don’t hesitate to call if you have any questions at all about income earned from a summer job.

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