If your teen has a job this summer, you're probably thankful
he's earning some cash so he doesn't come to you begging for money
all the time. Uncle Sam's glad, too, because some of that money
might be coming his way. That's right -- your child might owe taxes
on the money he earns this summer.
Here are five things the IRS wants you to know about income
earned from a summer job:
1. If your child is an employee, she must fill out a W-4, which
determines the amount of tax that will be withheld from her
Use our calculator
to make sure the amount being withheld is correct. Kids who are
claimed as dependents on their parents' returns must file a tax
return if they earn more than $5,700 from a job in 2010. If your
child earned less than that, she still may be required to file a
return if she earns more than $300 for the year from any
investments in her name, such as from a bank account, mutual fund
or custodial account.
2. Tips are taxable. If your child works as a waiter or camp
counselor, for example, and receives tips, she must report that
3.The IRS wants to know if your child has self-employment
income, for example, from babysitting or mowing laws. Your teen
must pay self-employment tax -- in addition to income tax-- if he
earns more than $400. Your child will need to file Schedule SE to
figure self-employment tax, which includes Social Security and
Medicare taxes. The rate is 15.3% of net earnings.
4. Special rules apply to newspaper carriers. They are
considered self-employed if their pay is related to sales rather
than hours worked and their contract states that they are not
employees. Usually, newspaper carriers younger than 18 don't have
to pay self-employment tax.
5. Active duty ROTC pay is taxable. However, food and lodging
allowances paid to ROTC students participating in advanced training
are not taxable.