Students and teenagers often get summer jobs which can be a great way to earn extra spending money or to save for later. Here are some additional top tips from the IRS for people with summer jobs:
- New Employees. When a person gets a new job, they 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 the employee?s pay. The?IRS Withholding Calculator?tool on?IRS.gov?can help a taxpayer fill out the form.
- Withholding and Estimated Tax.?Students and teenage employees normally have taxes withheld from their paychecks by the employer.? Some workers are considered self-employed and may be responsible for paying taxes directly to the IRS. One way to do that is by making?estimated tax?payments during the year.
- Self-Employment.?A taxpayer may engage in types of work that may be considered self-employment. Money earned from self-employment is taxable. Self-employment work can be jobs like baby-sitting or lawn care. Keep good records on money received and expenses paid related to the work.? IRS rules may allow some, if not all, costs associated with self-employment to be deducted. A tax deduction generally reduces the taxes you pay.
- Tip Income.?Employees should report?tip income. Keep a daily log to accurately report tips. Report tips of $20 or more received in cash in any single month to the employer.
- Payroll Taxes.?Taxpayers may earn too little from their summer job to owe income tax. Employers usually must withhold Social Security and Medicare taxes from their pay. If a taxpayer is self-employed, then Social Security and Medicare taxes may still be due and are generally paid by the taxpayer, in a timely manner.
- Newspaper Carriers.?Special rules apply to a newspaper carrier or distributor. If a person meets certain conditions, then they are self-employed. If the taxpayer does not meet those conditions, and are under age 18, they may be exempt from Social Security and Medicare taxes.
- ROTC Pay.?If a taxpayer is in a ROTC program, active duty pay, such as pay for summer advanced camp, is taxable. Other allowances the taxpayer may receive may not be taxable, see Publication 3?for details.
One great long-term retirement saving vehicle for a teenager would be a Roth IRA.? Someone can invest the less of $5,500 or the amount of compensation earned during the year into a Roth IRA, and all the earnings grow tax-free to be withdrawn tax-free upon retirement.? As a simple illustration, a $4,000 contribution to a Roth IRA compounding annually at 10% would be worth $181,037 in 40 years!