Top Summer Job Tax Questions Answered

DAYTON, OH (JULY 20, 2009) – Every summer, millions of people across the country seek flexible, part-time, or full-time summer employment. For many, this may be their first job – or their first seasonal job. As the recession digs deep, many people are looking into avenues of employment they haven’t tried before. But how do tax withholdings work if you’re a seasonal employee?  Instant Tax Service answers some of the most common summer job tax questions.

1) How does my employer determine what to take out of my paycheck?

Every employer should have their employees fill out a form W-4. On this form, employees should indicate how many deductions they are eligible for. Deduction types – and their qualifications - should be explained in detail on the form, but if employees have any questions, they should ask their employer’s HR professional or local tax expert for advice. Employers then use this form to determine the amount of tax you owe on your wages.

2) Has my employer already taken out the required tax deductions?

Employers are required to deduct federal and state income taxes, local taxes (if applicable), Social Security, and Medicare benefits from your paycheck. However, freelance or contract employees may be paid differently. Instead of issuing W-2’s for each employee around tax time, employees may receive a form 1099-MISC. Employees can use this form to report income to the IRS when they file their tax return instead of or in addition to a W-2. Generally, taxes are not automatically withheld from income reported on a 1099-MISC.  Keep in mind that payment in cash can present some unique tax filing issues.

3) My employer pays me in cash. Do I still have to report this income to the IRS and pay taxes on it?

Payments in cash can present some unique tax filing challenges. If you’re paid in cash by your employer, you may need to visit a professional tax preparer to help make sure you’re filing correctly. A tax preparer can help you determine whether your employer considered you an “employee” or “independent contractor.” Note that single employees earning less than $9,350 are not required to file a tax return, but may be entitled to a tax refund. Summer workers should still file a tax return to see if they qualify for a refund.   

4) Do I have to report the tips I make?

Whether you’re working a coffee shop or a as a car valet, tips are considered a source of income, and are subject to income tax. Employees should keep a record of tips received so income from this source is accurately reported on your tax return.

5) If I got a refund for all the taxes withheld on my paycheck from my summer job last year, will I have to pay taxes this year?

If an employee was refunded all of their withheld income tax last year and is working the same type of job (or a job with a similar pay rate, and their personal situation is the same), they may be able to claim “exempt” status when they fill out their W-4 form. This means they won’t be paying any federal income tax. The change will result in a bigger immediate paycheck. But employees should make sure that if their job or situation changes, they make that change on the new W-4.  Otherwise, their employer may be withholding too much or too little tax.

 About Instant Tax Service®
Instant Tax Service is a retail income tax preparation company operating over 1,200 corporate and franchise locations in 34 states.  Founded in 2000 in Dayton, OH by Fez Ogbazion and franchising since 2004, Instant Tax Service offers tax preparation, electronic filing, and refund anticipation loan services. For more information, visit www.instanttaxservice.com.