With summer comes the prospect of a summer job for college students. Many times, their top priorities are twofold:

1. Get some valuable work experience that can help them snag a choice position once they’ve graduated
2. Make some spending money while they’re at it

It’s during this time these working students get to know one of the basic laws of the Real World: Not all the money they earn goes into their pockets because their employer has to withhold taxes from their paychecks.

Even with part-time or temporary jobs, there are some things the IRS wants taxpayers to keep in mind.

What tax issues should college students consider when working a summer job?

New Employees: Workers, including students working summer jobs, normally have income and other taxes withheld from their paychecks by their employers. New hires need to fill out a Form W-4, Employee’s Withholding Allowance Certificate, and send that to their employer.

The employer, in turn, uses the completed W-4 to figure just how much money should be withheld from the new employee’s pay. In the old days, the employee had to figure out just how much to withhold from paychecks to satisfy the tax man. Now, though, new hires can go online and use the Withholding Estimator on the IRS website.

Self-Employment: If summer work consists of baby-sitting, lawn care or gig economy work and the like, these jobs are generally considered to be self-employed work by the IRS.

Cash earned from self-employment is taxable, and students in this line of work will have to pay their taxes directly to the Internal Revenue Service. One of the best ways to do this is to make estimated tax payments during the year.

Tip Income: Students who wait tables or tend bar as part of their summer jobs should remember that tip income is taxable. They need to keep a daily log of the tips they receive so they can report them accurately. Cash tips have to be reported to their employer if they bring in $20 or more for the month.

Payroll Taxes: These taxes pay for Social Security benefits. Even though students working a summer job might not earn enough over the season to owe income tax, their employers nevertheless have to withhold Social Security and Medicare taxes from their pay. Those students who are considered self-employed are generally responsible for paying Social Security and Medicare taxes directly.

Reserve Officers’ Training Corps Pay: Students in ROTC may be taxed on certain activities connected to their training. For example, if students are paid for things such as summer advanced camp, it is taxable. However, other perks the student receives, such as food and lodging, may not be taxed. See the Armed Forces Tax Guide on IRS.gov for more details.

For more information on summer jobs and taxes, check out Tax Rules for Students; Is My Tip Income Taxable?; and Do I Have Income Subject to Self-Employment Tax?

Source: IRS Tax Tip 2021-108