A summer job is a great way to add a little extra cash your bank account. Whether you are a college student strapped for cash, a professor trying to stay busy during the summer months or just have some time on your hands, accumulating part-time hours can really pay-off.
However, before you go out and celebrate with all the money you made, it is important to understand your obligations to Uncle Sam. If your only income for the year of part-time summer job, there's a good chance you may not need too much tax. But, if you have earned income throughout the remainder of the year, you'll want to make sure you're ready come the tax filing season.
To help you prepare, there are three types of tax you want to pay more attention to:
- Social Security and Medicare taxes (often called FICA)
- tax federal income
- tax state income
now that you know their names, we will break down.
social security and tax Medicare
Your employer will automatically deduct Social Security and Medicare taxes from each of your paychecks. The Law on federal insurance contributions, or better known as FICA, is a federal law that requires employers to withhold these taxes from your paycheck each pay period.
But on a good note, your employer kicks in half as to your tax payments from Social Security and Medicare.
If you're self-employed, which means that you work as an independent contractor or for your own business, you will need to set aside money to pay your taxes. This money should include Social Security and Medicare tax, which is lumped together and called "self-employment tax." Self-employment tax for 2016 was 15.3% on the first $ 118.500 Net Income and 2.9% on the net income is more than $ 118,500.
sure to keep track of all your expenses because you can deduct from income before paying self-employment tax.
Although the average taxpayer is subject to the social security and Medicare taxes, there are a few exceptions to the rule. For example, if you are under 18 years and the performance of domestic work such as babysitting or yard work, you do not have to pay self-employment tax. The same goes for newspaper carriers, distributors and suppliers.
And, if mom and dad you hire to work in their business, there is a good chance you may not have to pay Social Security and Medicare tax, either. However, to meet this exception, you must be under 18 years, and the activity of your parents must be a sole proprietorship or a partnership, not a corporation.
tax federal income
Another important tax taken into account is the federal income tax. This tax is collected by the IRS and depending on your annual taxable income. However, in some cases, this tax does not apply to everyone.
If you are a single student is claimed as a dependent on your tax return of parents, you can usually earn up to $ 6,300 (in 2016) before you owe federal income tax returned.
If you earn more than $ 6300, you will pay 10% of the next $ 9,275 you earn. After spending $ 15.475 mark ($ 6.300 + $ 9,075), the rates are higher.
tax state income
Unless you live in one of seven states that do not have the income tax, you'll have to pay state tax also.
state income tax varies regarding tax rates, how they are applied, the types of income that is taxable and what deductions and credits are allowed. However, it is generally lower than the federal income tax.
The non-income tax states are Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming.
Tax exemption
If you only work during the summer, you may qualify for a tax exemption, which means that your employer will not retain 'income tax from your pay. This only applies if you made less than $ 6,300. And keep in mind, exemption does not cover social security and Medicare.
In order to qualify for a tax exemption, you must meet specific criteria. To claim exemption, you must have received a refund of any income tax withheld on your paycheck in the previous tax year and expect the same to happen in the current year. If you meet these criteria, you can mark "EXEMPT" on line 7 of Form W-4. Typically your employer will ask you to fill out Form W-4 when you start working. This form is used to inform your employer how much tax they should retain your salary.
If there is no chance that you can win over $ 6,300 during the year, you will be liable to income tax. In this case, it is better to have tax withheld from each paycheck. It is much easier to have money withheld now that come with her next year when filing your tax return.
Should I file a tax return on income?
If you do not make more than $ 6,300 as an employee, you usually do have to file a tax return. However, if you had tax withheld from your paychecks, you'll want to file a return to get that money.
If you run your own business and make more than $ 400, you will need to complete Schedule C with your tax return and pay self-employment tax, unless you qualify to one of the exceptions.
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