The Tax Effects of Summer Employment

Many people get part-time seasonal jobs during the summer months.  Summer jobs are a great way for students and young adults to gain work experience, earn some extra money, and develop new skills. However, many people are not aware of the tax implications that come with earning income from a summer job. Understanding your tax responsibilities can help you avoid any surprises when you file your tax return.

If you earn money from a summer job, you may be required to pay federal and state taxes. Or you may have federal and state taxes withheld on your income even though you are exempt from paying taxes, meaning your annual gross income is less than the amount required to file a return.  As of 2024, you must file a tax return if your unearned income is over $1,150, your earned income is over $12,950.  So, if you make less than $12,950, but had federal taxes withheld, you may still want to file a tax return to recoup those tax payments.

When you start a summer job, you'll likely be asked to fill out a W-4 form. This form helps your employer determine how much federal income tax to withhold from your paycheck. If you're a student or dependent, you might not need to have much tax withheld if you expect to earn less than the standard deduction amount.  On the other hand, if you have a full-time job year-round, but work during the summer to earn a little extra money, you may accidentally push yourself into a higher effective tax rate and actually need to have more taxes withheld from your pay.  Luckily, there is a way to indicate this on the form W-4.

Regardless of your income level, if you are employed, both you and your employer will pay Social Security and Medicare taxes. These taxes are withheld from your paycheck and contribute to your future Social Security and Medicare benefits.  You may also have local taxes withheld from your pay.  For these taxes, filing a tax return will not get you a refund for those taxes withheld, no matter what your total gross income for the year is.

It is important to review your pay stubs to make sure the correct amount of tax is being withheld to ensure you are not surprised when you file your tax return.  Under withholding on your income can result in a pretty large tax bill and can even create large penalties.  You will also want to make sure you can access you form W-2 when tax season comes so that you can properly file your tax return.  A tax transcript will not provide enough information for you to file and you should not be using a paystub to prepare your tax return either.

Even if you're not required to file a tax return, it might be beneficial to do so. If too much tax was withheld from your paycheck, filing a return allows you to claim a refund.  If you have more than one summer job or combine a summer job with part-time work during the school year, be aware that your total income from all jobs may push you above the threshold for owing taxes.  If you're unsure about your tax situation, consider consulting with a tax professional. They can usually perform a tax projection and advise you on meeting all your tax obligations.

Getting a summer job is a fantastic opportunity, but it's important to be aware of the tax implications. By understanding your responsibilities and planning accordingly, you can make sure that tax season goes smoothly and you keep as much of your hard-earned money as possible.

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