As a father, I'm a big believer in tough love. I challenged my son, Danny, from the very beginning and he will tell you that I made him work for everything. If he wanted to go to the amusement park with his friends, I would never just hand over money. I made him do chores, like mow the lawn, to earn his own way.
Let's put it this way, a summer job wasn't up for negotiation in our family. Now that the 4th of July holiday is over, it's back to work for many students. The smart ones worked over the holiday for extra pay! Kids know that a summer job is a great way to earn some spending money or save for the school year. It's also a great way to learn about the workplace-;and the taxman. They go together. Here are 7 things you need to know about taxes.
1) New Employees. When you get a new job, you need to fill out a Form W-4, Employee's Withholding Allowance Certificate. Employers use this form to calculate how much federal income tax to withhold from your pay. If you've never filled out one of the forms before, the IRS Withholding Calculator tool can help you figure this out.
2) Withholding and Estimated Tax. Welcome to the world of paying taxes. If you are an employee, your employer normally withholds taxes from your paychecks. Don't let the amount shock you. In general, if you earn up to $10,350 you won't pay federal income tax if you are filing "single" in 2016, but numbers do vary by state. If you are an innovative student who has formed your own company, you may be responsible for paying taxes directly to the IRS. One way to do that is by making estimated tax payments on set dates during the year. The tax system is basically a pay-as-you-go system.
3)Self-Employment. Think of it this way-; money you earn working for others is taxable and some work you do may count as self-employment. These can be jobs like baby-sitting or lawn care. Keep good records of your income and expenses related to your work. You may be able to deduct those costs. A tax deduction generally reduces the taxes you pay.
4)Tip Income. Sorry, kids, but those tips are taxable. To stay legal, you must report $20 or more in cash tips received in any single month to your employer, so remember to keep a daily log. You also need to report all of your yearly tip income (even if it's under $20 a month) on your tax return.
5)Payroll Taxes. Wait a minute, you say, you may earn too little from your summer job to owe income tax. Maybe so. But your employer usually must withhold Social Security and Medicare taxes from your pay. If you're self-employed, you may have to pay them yourself. They count for your coverage under the Social Security system.
6)Newspaper Carriers. Students, all of those early mornings may pay off. Special rules apply to a newspaper carrier or distributor, although that's certainly a dwindling number. If you meet certain conditions, you are considered to be self-employed. If you do not meet those conditions, and are under age 18, you may be exempt from Social Security and Medicare taxes.
7) ROTC Pay. If you're in ROTC, active duty pay, such as pay you get for summer advanced camp, is taxable.The good news is other allowances you may receive may not be taxable, see Publication 3 for details.
So students, learn the lesson my son had to learn from his summer jobs. Making money is smart; keeping more of it in your pocket is even smarter.