HERE are 10 tips for students with summer jobs:
1. Fill out 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 withhold adequate amount of taxes to cover your tax liability.
2. 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.
3. If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. You will receive credits toward your benefits under the Social Security system.
4. 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.
5. Tips that you receive working as a waiter or camp counselor are taxable income and are subject to federal income tax.
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 are in the business of delivering newspapers under a written contract which states that you will not be treated as an employee for federal tax purposes.
7. You can earn about $10,300 in wages in 2015 and pay no income taxes, courtesy of standard deduction of $6,300 and personal exemption of $4,000.
8. You can even earn as much as $15,800 in wages, interest, and dividends but pay no income tax by contributing $5,500 to an IRA!
9. There are education credits that can bring your total earnings to about $20,000 without paying income tax.
10. FICA (Social Security and Medicare) taxes do not apply to service performed by students employed by a school, college or university where the student is pursuing a course of study. Whether the organization is a school, college or university depends on the organization’s primary function. In addition, whether employees are students for this purpose requires examining the individual’s employment relationship with the employer to determine if employment or education is predominant in the relationship.
Lesson: While it feels good to put cash in your pocket while going to school, don’t go full time and neglect your studies. I have seen young promising children who do well at work, get promoted with better pay at their part-time jobs, but leave school to work full time. What you earn now is tiny compared to what you can earn later when you have a college degree.
Additional Tip: If you are employed by your parents who do business as sole proprietors, they don’t have to withhold FICA (Social Security tax) if you are under age 18. This saves more than 15% of their gross wages. They also don’t have to pay FUTA (unemployment tax) if you are under 21.
* * *
Victor Santos Sy graduated Cum Laude from UE with a BBA and from Indiana State University with an MBA. Vic worked with SyCip, Gorres, Velayo (SGV – Andersen Consulting) and Ernst & Young before establishing Sy Accountancy Corporation in Pasadena, California.
* * *
He has 50 years of experience in defending taxpayers audited by the IRS, FTB, EDD, BOE and other governmental agencies. He is publishing a book on his expertise – “HOW TO AVOID OR SURVIVE IRS AUDITS.” Our readers may inquire about the book or email tax questions at [email protected].