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Kids and Summer Jobs: What to Know About Taxes

Important tax information when it relates to Kids working summer jobs.

With many teenagers starting summer jobs in a few weeks, it’s important that have a basic understanding of how the tax code works.

Uncle Sam will consider the majority of earnings made over the summer as taxable income, including bonuses and commissions. For those with a job... waiting tables or other employment that includes tips from customers, those tips are also taxable income. Workers making more than $20 per month in tips, must report the amount to the employer so the taxes can be calculated and withheld. Tips either come in cash or added to the charge slip, workers and employers need to make sure both types are being recorded and calculated.

According to the IRS, teenagers making money from self-employment such as mowing lawns, designing websites, or babysitting, must pay tax on those monies and will be required to file a tax return if the earnings exceed $400. It’ not likely teenagers in this position will owe any income tax, but they will be required to pay self-employment tax, which funds Social Security and Medicare accounts.

Self-employment tax is computed at 15.3% of the profit, and kids can deduct any business expenses from the profit before paying the self-employment tax, so they should learn what expenses qualify as deductions. The IRS states that all “ordinary and necessary” business expenses can be deducted. Here are a few examples to help make determinations:
You babysitting for a family and you decide to take the kids to an amusement park at your expense. The amount you pay for admission, refreshments and other costs for the kids that aren’t reimbursed by their parents can be deducted as well as mileage if you drove them to and from in your own car.
You mow lawns and garden for your neighbor and at the end of the summer, you buy him an azalea bush as a gift. This is a valid business expense.
You design websites and needed to buy a laptop and special software. You may be able to deduct only a portion of the laptop if you did not use it 100% for business and you can write off the full cost of the software.

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