The summer internship with a financial institution of his choice has given wings to Jacob’s aspirations. He feels
as if his career graph is on the runway to success, all set to take off just the way he wanted it to be. Many
students, like Jacob, take a job in the summer after school lets out.

If it’s your first job, it gives you a chance to learn about the working world. That includes taxes we pay to
support the place where we live, our state, and our nation.

Here are nine things that students who take a summer job should know about taxes:

1. Don’t be surprised when your employer withholds taxes from your paychecks. That’s how you pay your
taxes when you’re an employee. If you’re self-employed, you may have to pay estimated taxes directly
to the IRS on certain dates during the year. This is how our pay-as-you-go tax system works.

2. As a new employee, you’ll need to fill out a Form W-4, Employee’s Withholding Certificate. Your
employer will use it to figure out how much federal income tax to withhold from your pay. The IRS Tax
Withholding Estimator tool at IRS.gov/W4App can help you fill out the form.

3. Starting in 2025, not all tip income is taxable. If you get tips, you must keep a daily log so you can
report them. You must report $20 or more in cash tips in any one month to your employer. And you
must report all your yearly tips on your tax return. For 2025 forward, up to $25,000 in tip income is tax-
free, depending on which occupation you work in. Check the Treasury Tip Occupation Code (TTOC) at
IRS.gov to see if the tips you received qualify for this exclusion.

4. Starting in 2025, up to $25,000 may be excluded in overtime pay. This is only the difference
between ordinary pay and overtime pay that is excluded.

5. Money you earn doing work for others is taxable. Some work you do may count as self-employment.
This can include jobs like babysitting and lawn mowing. Keep good records of expenses related to your
work. You may be able to deduct (subtract) those costs from your income on your tax return. A
deduction may help lower your taxes.

6. If you’re in ROTC, your active duty pay, such as pay you get for summer camp, is taxable. A
subsistence allowance you get while in advanced training isn’t taxable.

7. You may not earn enough from your summer job to owe income tax. But your employer usually must
withhold Social Security and Medicare taxes from your pay. If you’re self-employed, you may have to
pay them yourself. They count toward your coverage under the Social Security system.

8. If you’re a newspaper carrier or distributor, special rules apply. If you meet certain conditions, you’re
considered self-employed. If you don’t meet those conditions and are under age 18, you are usually
exempt from Social Security and Medicare taxes.

9. You may not earn enough money from your summer job to be required to file a tax return. Even if that’s
true, you may still want to file. For example, if your employer withheld income tax from your pay, you’ll
have to file a return to get your taxes refunded.

GRADUATES and TAXES:

Just a reminder for new graduates as you step out of college life, into the work environment, and the rest of
your life. Here are some tax tips:

• Student Loan Interest (you get an above the line deduction for up to $2,500, depending on income
  levels).
• Student Loan Repayments (The SECURE Act allows a lifetime total of up to $10,000 in 529 Education
  plan distributions to be applied to the principal or interest on qualified student loans, tax-free. Note that
  any student loan interest paid using 529 funds cannot also be claimed as a student loan interest
  deduction on your tax return).
• Education credits (the American Opportunity Tax Credit is available for up to four years of post-
  secondary education; the Lifetime Learning Credit is available without limit on the number of years, for
  education that leads to a college degree or vocational diploma, no matter how old you are and no
  matter how many other degrees you may already have – both credits are subject to income limits).
• Withholding (be sure when you start a new job, you fill out the W-4 form to determine the correct
  amount of taxes, which may require help from an accountant). See item #2 before. Don’t forget to
  include your state tax withholding, too.
• Retirement Savings Contribution Credit (people starting a new job or beginning to save with a
  retirement plan – even an Individual Retirement Arrangement (IRA) – may receive a tax credit worth up
  to $1,000 (up to $2,000 if married filing jointly) by contributing to a 401(k) or IRA. Keep in mind that full-
  time students and dependents on someone else’s return are not eligible for this credit).
• Up to $25,000 worth of tip income and overtime pay, may be excluded under certain conditions.

Each of these choices has limitations based on the income you earn and whether you are being claimed as a
dependent on someone else’s tax return. Many times, the first year out of college, the parents still claim the
graduate child as a dependent. You must make sure you communicate with your parents, to not double claim
the same dependent, because that is NOT allowed. Usually, the one earning the most money receives a better
tax benefit from claiming the dependent. Be sure to ask azmoneyguy or your tax professional which is best for
your circumstances.

Call today, don’t delay! See how this affects you. We can be reached at 602-264-9331 and on all social media under azmoneyguy.

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