News IRS Tax Tip: Students Starting a Summer Job Should Know This

Now that school is out, many students will be starting their summer jobs.

Students should be reminded that not all the money they earn will may make it to their pockets, because employers must withhold taxes. 

Here are six things the Internal Revenue Service wants students to be aware of when they start their 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

Students who earned money from summer or part time employment should take extra care in completing the Form W-4, Employee's Withholding Allowance Certificate. 

"This is particularly true of the student that is eligible to be claimed as a dependent on their parents' tax return, which will limit the amount of standard deduction they may be entitled to," said Dianne Besunder, IRS spokesperson."Keep in mind  that you cannot claim exemption from federal income tax withholding if you are dependent and your income is expected to exceed $950 and includes more than $300 of unearned income such as interest and dividends."

Also, please note: Employee news carriers under age 18 are exempt from Social Security and Medicare taxes. Generally, self-employed news carriers must pay self-employment tax.