Tips For Summer Jobs - Avoid Tax Time Suprises
As we enter the summer months, many people are taking advantage of the long days to earn some extra income. Whether you’re a teacher or a student taking on a summer job to earn some extra cash or are a contractor taking on a much work as possible during the best months of year, here are some tax tips to help avoid surprises come tax time:
● Withholding for summer jobs
o The old way of filling out your W-4 and listing the number of exemptions is a thing of the past (well, it may come back in 2025). If you are working multiple jobs, you will want to make sure your W-4s with each employer are filled out correctly. If your additional income isn’t factored into your withholding, you could end up being under withheld at the end of the year. While the new W-4 can be a bit confusing in these situations, the IRS does have an online calculator that you can use to fill out your W-4s correctly (https://www.irs.gov/individuals/tax-withholding-estimator)
● Self-employment summer income
o If you are working for yourself this summer, whether it’s tutoring or lawn work you may be responsible for self-employment tax. If you make over $400 in self-employment income you are responsible for self-employment tax (social security and Medicare taxes). Depending on how much you make, you will want to either make quarterly estimated tax payments, or adjust your withholding at your full time job to cover this additional tax liability. Also keep in mind that you can deduct your business expenses related to your self-employment work from your self-employment income. We can assist you with tools and worksheets to help you keep track of these expenses.
● Retirement account contributions
o While retirement may seem a ways down the road, it will be here before you know it. Why not save some of the additional income for retirement? There are several options available, depending on your income level and whether you are covered by a retirement plan at work. The IRA contribution limits for 2023 are $6,500 for those under age 50, and $7,500 for those age 50 or older.
▪ If you are not covered by a retirement plan at work, or if your Modified Adjusted Gross Income (MAGI) is under the limit for your filing status, you may be able to make tax-deferred Traditional IRA contributions.
▪ If your income is under the MAGI limit for your filing status, you can make your IRA contributions to a Roth IRA. While these contributions don’t qualify for a tax benefit at the time of contribution, you are able to take distributions from the Roth IRA tax-free after the age of 59 1/2. This makes Roth IRAs one of the most powerful retirement tools out there.
▪ You can find more information about the 2023 retirement account contribution limits here (link https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-contributions)
