Three things to know about taxes on summer jobs – The Ukiah Daily Journal
Summer brings warm weather, fun outdoor activities and new opportunities to earn extra income. However, seasonal income taxes should be treated with care, whether they relate to your child’s first job or an additional income opportunity for you. Here are some tips to help you manage the taxes on your summer income:
Students should take advantage of non-taxable earnings limits. If you plan to earn less than the annual standard deduction ($12,950 for single taxpayers in 2022), none of your income is subject to federal tax! If possible, earn at least this amount each year to maximize your tax-free income. Remember that while you can be considered a dependent on someone else’s tax return, the limits on non-taxable unearned income such as interest and dividends are lower.
Tip: If your annual income is less than the standard deduction, you can claim the EXEMPTION on your Form W-4. This prevents federal income taxes from being withheld from your pay.
Independent contractors must make estimated payments. As an independent contractor, you are responsible for paying all taxes on your income. You do this by making quarterly estimated tax payments to the IRS using Form 1040-ES. In addition to federal and state taxes, independent contractors must pay a self-employment tax of 15.3% of earnings.
Tip: Track your expenses and keep your receipts. By doing this, you can subtract eligible expenses such as mileage, supplies, and uniforms from your gross income. Use this lower income figure to calculate your self-employment tax and correctly estimate your tax liability.
Keep a close eye on tax deductions. As an employee, your employer withholds taxes based on what you report on Form W-4. Unfortunately, the tax tables used by this form to calculate your deductions do not take seasonal jobs into account. This generally translates into payroll deductions that are too low for workers on supplemental income and too high for students working in the summer.
Tip: If you anticipate more income than the standard deduction, request a review of your deductions. Use the tools on the IRS website, review last year’s tax return, or ask for help estimating the exact amount to withhold. From there, ask your employer to adjust your federal and/or state deductions up or down.
With a little tax planning, you can ensure that your summer job gives you the income you’re looking for without the disappointment of unexpected taxes. Please call if you have any questions.
James Angell is a Certified Public Accountant based in Willits. His office is located at 461 S. Main St. and he can be reached at 707-459-4205.