Summer Job? What Teens and Parents Need to Know

Now that school’s out and summer has officially arrived, many students will turn their attention to finding a summer job. Teens getting a job for the first time are often shocked to find out that not all the money they earn ends up in their pocket. Whether it’s flipping burgers, filling coffee or filing documents, there are a number of tax implications teens and their parents should be aware of!

Wage Reporting & Tax Withholding
When your teenager gets hired for a summer job they’ll most likely have to complete Form W-4, Employee’s Withholding Allowance Certificate, before they can start working. The purpose of the W-4 is to let the employer know how much the employee wants to have withheld for federal and state income taxes. Your teen can also use this form to claim an exemption from federal withholding if they don’t think they’ll earn more than the standard deduction of $12,200.

Generally, as long as your child is considered a dependent and they don’t earn more than the standard deduction amount they won’t have to file a separate tax return on income generated from a summer job. The IRS considers anyone who is under age 19 a dependent, unless they’re permanently disabled.

If your teen is interested in branching out on their own, starting a summer business is a step in the right direction. You just need to keep in mind that whether it’s babysitting or mowing lawns, they may still be responsible for paying taxes on the money they make. Generally, the IRS requires teens who earn more than $400 from self-employment to file a tax return. If they have any expenses to deduct, such as mileage or equipment, they’ll also need to file a Schedule C, Profit or Loss from Business, on their Form 1040.

The self-employment tax rule also applies if your teen is working as an independent contractor, rather than an employee. In this situation, they should receive a Form 1099 at the end of the year if they earned more than $600. Depending on how much they earned, they may not have made enough to owe federal income tax, but they’ll still be on the hook for self-employment tax, as well as being responsible for keeping track of their own income.

Tip Income
Many summer jobs are in the service industry like restaurants, coffee shops and hotels where individuals may have an opportunity to earn tips. It’s important to know that all tip income needs to be reported on your tax return – taxpayers earning cash tips of $20 or more during any single month must report this to their employer. Any tips reported to an employer should show up on the employee's Form W-2 at year-end. If the tips were not reported to an employer, the employee needs to report them separately on their tax return.

Keeping a daily log can be helpful for keeping track of your tips and there are several handy mobile phone apps that can make this a breeze. Refer to IRS Publication 531 for more information about reporting tip income correctly.

Service Projects & Volunteering
Perhaps you’d rather spend your summer vacation helping out others by completing a worthwhile service project or volunteering. Although you won’t have to pay taxes since you technically aren’t earning any money, there may be other benefits you can take advantage of. For example, driving a personal vehicle while donating services on a trip sponsored by a qualified charity could qualify for a tax break. Taxpayers can deduct 14 cents per mile for charitable mileage driven in 2019 so make sure you keep good records!

As you can see, there are a number of tax considerations for students pursuing a summer job. Spending some time now to plan for your specific tax situation could save hours, and dollars, when filing your return. While it’s always a good idea to ask parents for help, our friendly team of licensed tax preparers and Enrolled Agents is just a phone call away.

If you have any questions about taxes related to a summer job or would like help filing your tax return, please CONTACT US right away. We’re here to help!