As summer approaches, many of us have kids or grandkids who are coming home for the summer and working part-time. Whether they’re bussing tables, counseling summer camp, or mowing lawns, these tips will help them (and you) understand the tax implications of summer jobs:
• Withholding: If your child is working for an employer, they will generally withhold taxes from their paycheck. If they are self-employed, however, they may be responsible for paying these taxes directly to the IRS.
• Self-Employment: Speaking of self-employment, it’s a good idea to keep records of income and expenses related to self-employed work. Expenses associated with self-employment may be deductible.
• New Employee Paperwork: Talk to your child or grandchild about the paperwork that they may need to fill out when starting a new job. This will likely include a W-4 form, which is a form that businesses use to calculate how much federal income should be withheld from their paycheck.
• Tip Income: All tip income is taxable and if they make more than $20 in cash tips a month, they need to report it to their employer. In addition, they must report all yearly tips on their tax return.
• Payroll Taxes: Even if your kids or grandkids earn too little to owe income tax, they may still have to either pay Social Security and Medicare taxes themselves or have them withheld from their paycheck.
Summer jobs are a great way to learn about responsibility and taxes, as well as earn a little extra income before returning to the school year.
* This information is not intended to be a substitute for specific individualized tax advice. We suggest that you discuss your specific tax issues with a qualified tax professional.
Tip adapted from IRS.gov7