School’s out, but the IRS has another lesson for students who will be starting summer jobs. Summer jobs represent an opportunity for students to learn about the tax system.
Not all of the money they earn will be included in their paychecks because their employer must withhold taxes.
Here are six things the IRS wants students to be aware of when they start a 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.
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. Even if you do not earn enough money to owe income tax, you will probably have to pay employment taxes. Your employer will withhold these taxes from your paycheck. If you earn $400 or more from self-employment, you will have to pay self-employment tax. This pays for benefits under the Social Security system that are available for self-employed individuals the same as they are for employees that have taxes withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE, Self-Employment Tax.
5. Food and lodging allowances paid to ROTC students in advanced training are not taxable. However, active duty pay – such as pay received during summer camp – is taxable.
6. Special rules apply to services you perform as a newspaper carrier or distributor. You are treated as self-employed for federal tax purposes regardless of your age 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.
If you do not meet these conditions and you are under age 18, then you are generally exempt from Social Security and Medicare tax.
Please give Tax On Wheels, LLC a call at 803 732-4288 if you need assistance with your summer job tax issues.
Automated IRS System Helps College-Bound Students with Financial Aid Application Process
College-bound students and their parents typically want to make every dollar and every minute of the college experience count including money spent on tuition and time spent on the college financial aid application process. The Internal Revenue Service is helping minimize the time spent on the completion of the Free Application for Federal Student Aid (FAFSA) form by automating access to federal tax returns with the IRS Data Retrieval Tool. This tool provides the opportunity for applicants to automatically transfer the required tax data onto the FAFSA form.
Here are some tips on using the IRS Data Retrieval Tool:
- Benefits The IRS Data Retrieval tool is an easy and secure way to access and transfer tax return information directly onto the FAFSA form, saving time and improving accuracy. Also, the increased accuracy reduces the likelihood of being selected for verification by the school’s financial aid office.
- Eligibility Criteria Taxpayers who wish to use the tool to complete their 2012 FAFSA form must:
- have filed a 2011 tax return;
- possess a valid Social Security Number;
- have a Federal Student Aid PIN (individuals who don’t have a PIN, will be given the option to apply for one through the FAFSA application process);
- have not changed marital status since Dec. 31, 2011.
- Exceptions If any of the following conditions apply to the student or parents, the IRS Data Retrieval Tool can not be used for the 2012 FAFSA application:
- an amended tax return was filed for 2011;
- no federal tax return for 2011 has been filed ;
- the federal tax filing status on the 2011 return is married filing separately; a Puerto Rican or other foreign tax return has been filed.
- Alternatives If the IRS Data Retrieval Tool can not be used and if the college requests verification documentation, it may be necessary to obtain an official transcript from the IRS. To order tax return or tax account transcripts, visit www.irs.gov and select Order a Transcript or call the Transcript toll-free line at 1-800-908-9946.
In addition to helping reduce the time and effort involved in completing and submitting the FAFSA form through the IRS Data Retrieval Tool, the IRS offers money-saving information to college students and their parents. Important information regarding tax credits and deductions for qualifying tuition, materials and fees is available at the IRS Tax Benefits for Education: Information Center and in IRS Publication 970, Tax Benefits for Education both of which are available at www.IRS.gov.
Please call Tax On Wheels, LLC at 803 732-4288 if we can assist you with this or any other IRS system.