Working students: Do you owe Uncle Sam?
You may not think you make enough money to worry about paying taxes, but you'd be surprised. Depending on your situation, your summer job could cost you come next year’s tax season. To make sure your second job is helping to pay the bills—and not creating more—follow this advice from accounting professor and lawyer Rick Marmon at Rowan University in Glassboro, N.J. (And if you didn't know, your first job is being a veterinary student.) First things first, let’s define your tax situation.
Are you a dependent?
You are if you’re under the age of 24 and are a full-time student for the majority of five months during a calendar year. Not a dependent? Click here to get an early start on your tax planning this year.
Will you earn more than $5,700 this year?
Dependents can't reduce their taxable income by their personal exemption, which is $3,650 for 2010. So, if you'll pull in more than $5,700 this year, you'll have a tax liability. However, if you expect to earn less than this magic number, Marmon advises filling out a W-4 with your employer exempting you from tax withholding. You'd ultimately receive a refund from the taxes withheld, so it’s a waste of time and money to file a tax return, Marmon says.
Does your unearned income exceed $1,900?
Unearned income is revenue derived from sources other than employment, such as interest and dividends from investments. If yours exceeds $1,900 this year, you'll need to pay tax on the surplus at your parents’ marginal tax rate. This stipulation is to prevent parents from putting their stocks and CDs in their children’s names.
Are you self-employed?
So much for getting paid “under the table.” Thanks to the self-employment tax, if you earn more than $433 annually, you’re required to pay a 15.3 percent tax in addition to any federal income tax required. So be sure to track and account for whatever odd jobs you do in between classes—mowing lawns, washing cars. But don’t count babysitting. Babysitters are employees of the parents for whom they work and aren’t subject to tax.
For more information on tax obligations for student workers, visit the IRS’s website at irs.gov.