Tips are taxable too
If a teenager’s summer job includes tips, they should be sure to keep a daily record of all cash tips received and report their total cash tip income of $20 or more in any month to their employer. The tips they earn during the year must be reported on their tax return, as well.
Expect taxes even if self-employed
Self-employed entrepreneurs who spend the summer doing things like running a landscaping business, selling products online, or doing tech consulting may need to make quarterly estimated tax payments based on their earnings. They should be sure to keep thorough records and receipts so that they can track their income and estimate their quarterly tax bill, as well as qualify for deductions that might lower their total taxable income and the taxes they owe.
Know whether to file or not
If a teenager can be claimed as a dependent on someone else’s tax return, they generally don’t have to file a return if his or her total income for the year was less than $6,350 (this excludes those who were self-employed since they would have to file Social Security taxes due). That may be more than many summer workers make, but there may be some situations in which filing a return is a good idea. One clear situation is if taxes were withheld from the summer employee’s pay and he or she is now due a tax refund. If a dependent files his or her own return, they don’t claim a personal exemption for themselves. Instead, the person claiming them as a dependent will claim their personal exemption.
Look for your W-2
By the end of January following the summer when the student worked, he or she will receive a Form W-2 from the employer. This form includes important information that they’ll use in filing a tax return.
Your local CPA can help
A summer job is a great way to build up savings for college or other goals and to gain experience in the workforce. If your family has questions about taxes or any other financial topic, be sure to turn to your local CPA. He or she can address all your important financial concerns. To find a CPA in your area or for more financial tips, visit www.picpa.org/moneyandlife.
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