Tips for Students Planning to Work During the Summer

Tips for Students Planning to Work During the Summer

Well, well, well, look who’s here! As the summer break looms ahead, all you students out there are gearing up for some part-time summer jobs. But hold on tight, because there are some tax issues you need to wrap your head around. Don’t worry, I’m here to give you the rundown:

Let’s start with the oh-so-fun Form W-4. Your employer uses this little gem to figure out how much tax to yank from your hard-earned paycheck. Now, if you’re juggling multiple summer jobs like the multitasking superstar you are, make sure each employer withholds enough to cover your total tax liability. But wait, here’s the juicy part: If you’re a dependent and your income is solely from summer gigs, you can earn up to $13,850 (the standard deduction for 2023) without owing a penny in income tax. But of course, the IRS likes to throw in a twist. If you have investment income, things get a bit more complicated because, special rules apply.

Now, let’s talk about those payroll surprises. Some sneaky employers might try to dodge their payroll tax responsibilities by paying you in cash and treating you like an independent contractor. That means you’ll be stuck with both the employee’s and the employer’s payroll tax liability. But fear not, my darlings, the signs are there. If a potential employer asks you to fill out a Form W-9 instead of a W-4 or simply demands your Social Security Number without even bothering with a W-4, run for the hills!

Ah, tips, tips, tips. If you’re working as a waiter, a camp counselor, or any other service industry job, those tips can add some extra sparkle to your summer income. But let’s get real, every penny of those tips is taxable income, and the IRS wants its share. If you rake in $20 or more in tips in a month while working for a single employer, you better report it in writing to your boss by the tenth day of the following month. Your employer will then do their duty and withhold those FICA taxes and income taxes from your fabulous tip income, including it on your W-2. Oh, and you can keep track of your tips on Form 4070A and submit it to your employer.

Now, let’s talk about those odd jobs. You know, those cash-in-hand gigs that you think are tax-free. I wish that were true. Unfortunately, all that cash is taxable, and you might even be on the hook for some self-employment taxes. Dog walking, babysitting, lawn mowing – they all count, and the taxman will come knocking. Life’s just not fair, is it?

And speaking of self-employment taxes, let’s dive right into that pool of fun. When you’re employed by someone else, your employer takes care of the Social Security and Medicare taxes, matching every dollar you contribute. But when you’re self-employed, it’s all on you. If your net earnings from those odd jobs reach $400 or more, you better believe you’ll be forking over that 15.3% self-employment tax. Ouch!

Now, here’s a little perk for you. If you’re working in a business solely owned by your parents and you’re under 18, guess what? No payroll taxes for you, my little lucky charm. You can skip that 7.65% payroll tax and your parents can breathe a sigh of relief. Just remember, it doesn’t apply if their business is set up as a corporation.

Attention ROTC students! Those subsistence allowances you receive during advanced training are not taxable. Woo-hoo! But hold your horses, because any active duty pay you get, especially during summer advanced camp, is fair game for the taxman. Sorry, but duty calls.

Now, here’s a little something for the future you. If you’re earning more or working part-time beyond the summer, consider stashing those extra bucks into a traditional IRA. Yes, you can make a tax-deductible contribution of up to $6,500 for 2023. Cha-ching! And guess what? The business you’re working for might even offer retirement plan benefits. It all depends on the plan, your age, and how many hours you’re putting in. So, go ahead, my financially savvy lovelies, earn those wages, dodge that income tax, and prepare for a fabulous retirement.

Phew, that was quite the journey through the world of summer job taxes! Remember, if you or your parents have any burning questions about these tax issues or any other student employment shenanigans, don’t hesitate to give our office a call. We’re here to slay those tax dragons and make sure you come out on top. Happy summer jobbing!