Your first job: tax tips for teens

As school winds down many students will hit the job market for summer employment. The Internal Revenue Service reminds students that not all the money you earn may make it into your pocket. That’s because your employer must withhold taxes. Here are some things the IRS wants students to be aware of when they start a summer job.

The amount of money withheld from each paycheck can come as a surprise to first-time filers. Generally, employers are required to deduct and withhold: federal and state income taxes, local taxes, payroll taxes, such as Social Security (FICA) and Medicare, which reduce a paycheck by 7.65 percent.

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. Additionally, residents working in New York State should complete Form IT-2104.

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.

A youngster who is a dependent of another taxpayer generally doesn’t have to file an income-tax return unless the youth makes more than the standard deduction amount for a single filer. For the 2023 tax year, the standard deduction amount is $13,850.

For the 2023 tax year, if your gross income is under $13,850 and is strictly from wages, you can claim “exempt” on your W-4 form. You will not owe any federal taxes on your income. Be careful, as state tax agencies have much lower thresholds for exempt income.

For example: Nicole, a college student, earned $2,000 working in an ice-cream shop during the summer. They withheld $100 in federal tax. Nicole must file a tax return to claim refund on the $100 withholding. Obviously, Nicole should have claimed “exempt.” Her employer will deduct Social Security taxes from her wages, as required by law, and these are not refundable.

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 therefore subject to federal and state income tax. Many students do odd jobs over the summer to make extra cash. Earnings you receive from self-employment, including jobs like babysitting and lawn-mowing, are subject to income tax.

If you have net earnings of $400 or more from self-employment, you will also have to pay self-employment tax. This tax pays for your benefits under the Social Security system. The self-employment tax is figured on Form 1040, Schedule SE.

If your child has a large amount of investment income, in addition to a job, his tax return can become very complex. It may be a good idea to speak with a tax professional.

Finally, remind your child to start a lifetime good habit and file his tax returns on time.

Barry Lisak is an IRS enrolled agent specializing in personal and small business taxes for 30 years. Any questions can be directed to him at 516-829-7283, or mrbarrytax@aol.com.