During the summer many students focus on making money from a summer job. They may want to gain work experience, earn some spending money or help pay for college. Here are some facts you should know about summer jobs and taxes.
First of all, recognize that not all the money summer workers earn will make it to their pocket because employers must withhold taxes from their paycheck.
New employees:
Employees – including those who are students – normally have taxes withheld from their paychecks by their employer. When anyone gets a new job, they need to fill out a Form W-4, Employee’s Withholding Allowance Certificate, and submit it to their employer. Employers use this form to calculate how much federal income tax to withhold from the new employee’s pay. The Withholding Estimator on IRS.gov can help a taxpayer fill out this form.
Self-employment:
Students who take on jobs like baby-sitting, lawn care or gig economy* work are generally self-employed. Money earned from self-employment is taxable, and these workers may be responsible for paying taxes directly to the IRS. One way they can do this is by making estimated tax payments during the year.
Tip income:
Students who earn tips as part of their summer income should know tip income is taxable. They should keep a daily log to accurately report tips. They must report cash tips to their employer for any month that totals $20 or more.
*What you need to know about gig work:
The gig economy is activity where people earn income providing on-demand work, services or goods. Often, it’s through a digital platform like an app or website. Examples of gig work include:
- Drive a car for booked rides or deliveries
- Rent out property or part of it
- Run errands or complete tasks
- Sell goods online
You must report income earned from the gig economy on a tax return, even if the income is:
- From part-time, temporary or side work
- Not reported on an information return form – like a Form 1099-K, 1099-MISC, 1099-NEC, W-2 or other income statement
- Paid in any form, including cash, property, goods, or virtual currency
It’s critical to maintain written records of expenses incurred doing gig economy work. This includes mileage if doing deliveries, materials purchases if one does crafts for sale, etc.
The IRS has helpful tools and resources for gig workers. Click here to learn more.
Knowing the tax implications of summer work ahead of time will make it easier come tax time.