Working a summer job is a great way for teens to get valuable experience for their resume—not to mention extra spending money. Learning a little more about the tax implications can help them avoid any surprises when tax season rolls around next year. These tips are designed for you to make the most of your new earnings.
Know the Tax-Free Earnings Limits
Doing a little math before the job starts can lead to big savings later on. It’s good to know your tax-free earning limits. The annual standard deduction is $12,200 for individuals, which means that earning that amount—or anything below it—won’t put you on the list for federal taxes.
If you total up your anticipated earnings for the summer season and they come in below that standard deduction, you can mark your Form W-4 as EXEMPT. Then you won’t have federal taxes withheld for any of your paychecks. Of course, you need to know these details ahead of time to put them in action.
Make Estimated Payments
Independent contractors have different rules to follow. These individuals are responsible for managing the details on all of their earnings. For this reason, it’s helpful to make plans for payments before tax season to avoid penalties. This is done with Form 1040-ES. You’ll need to determine your projected earnings for these estimated tax payments. A CPA or tax professional can help organize these details.
Saving receipts and keeping track of business expenses will help ensure you don’t overpay on taxes. Mileage, uniforms, and supplies should all be tallied up and subtracted from your gross earnings. Then you’ll be in a better position to pay what tax is required—without dipping too far into your revenue.
Review Your Tax Withholdings
In general, employers withhold tax based on claims made for an employee’s W-4. This isn’t the case for seasonal work, though. If you expect to make more than the standard deduction, you might want to request different withholdings on your paycheck. Will you earn more than $12,200 for the season? A tax forecast for the summer, or the rest of the year, can help you adjust your rates so you don’t end up owing more than you planned on next year.
The tax laws can be confusing, but you don’t have to stay in the dark about the rules. Our team is just a phone call away! When you want a little guidance, NSO and Company is here to help. Reach out for answers to any of your tax questions. We’ll work with you to run the numbers so you stay compliant and still get the best deal possible for your taxes.