Seven Tax Tips for Students with a Summer Job

Are you, or do you know a student with a summer job? Here are seven things you should know about the income earned during the summer months.

1. All taxpayers fill out a W-4 when starting a new job. This form is used by employers to determine the amount of tax that will be withheld from your paycheck. Taxpayers with multiple summer jobs will want to make sure all their employers are withholding an adequate amount of taxes to cover their total income tax liability. To make sure your withholding is correct, call our office.
   
2. Whether you are working as a waiter or a camp counselor, you may receive tips as part of your summer income. All tip income you receive is taxable and is therefore subject to federal income tax.
   
3. Many students do odd jobs over the summer to make extra cash. If this is your situation, keep in mind that earnings you receive from self-employment are subject to income tax. This includes income from odd jobs like baby-sitting and lawn mowing.
   
4. If you have net earnings of $400 or more from self-employment, you also have to pay self-employment tax. (Church employee income of $108.28 or more must also pay.) This tax pays for your benefits under the Social Security system. Social Security and Medicare benefits are available to individuals who are self-employed just as they are to wage earners who have Social Security tax and Medicare tax withheld from their wages. The self-employment tax is figured on Form 1040, Schedule SE.
   
5. Subsistence allowances paid to ROTC students participating in advanced training are not taxable. However, active duty pay - such as pay received during summer advanced camp - is taxable.
   
6. Special rules apply to services you perform as a newspaper carrier or distributor. You are a direct seller and treated as self-employed for federal tax purposes if you meet the following conditions:
   
   • You are in the business of delivering newspapers.
   • All your pay for these services directly relates to sales rather than to the number of hours worked.
   • You perform the delivery services under a written contract which states that you will not be treated as an employee for federal tax purposes.
7. Generally, newspaper carriers or distributors under age 18 are not subject to self-employment tax.

A summer work schedule is sometimes a patchwork of odd jobs - which makes for confusion come tax time. Contact us if you have any questions at all about income your child earned this summer season.

 

Paying Off Debt the Smart Way

Being in debt isn't necessarily a terrible thing. Between mortgages, car loans, credit cards, and student loans - most people are in debt. Being debt-free is a great goal, but you should focus on the management of debt, not just getting rid of it. It's likely to be there for most of your life - and, handled wisely, it won't be an albatross around your neck.
You don't need to shell out your hard-earned money for exorbitant interest rates, or always feel like you're on the verge of bankruptcy. You can pay off debt the smart way, while at the same time saving money to pay it off faster.

Know Where You Are

First, assess the depth of your debt. Write it down, using pencil and paper, a spreadsheet like Microsoft Excel, or a bookkeeping program like Quicken. Include every financial situation where a company has given you something in advance of payment, including your mortgage, car payment(s), credit cards, tax liens, student loans, and payments on electronics or other household items through a store.
Record the day the debt began and when it will end (if possible), the interest rate you're paying, and what your payments typically are. Add it all up, painful as that might be. Try not to be discouraged! Remember, you're going to break this down into manageable chunks while finding extra money to help pay it down.

Identify High-Cost Debt

Yes, some debts are more expensive than others. Unless you're getting payday loans (which you shouldn't be), the worst offenders are probably your credit cards. Here's how to deal with them.

• Don't use them. Don't cut them up, but put them in a drawer and only access them in an emergency.
• Identify the card with the highest interest and pay off as much as you can every month. Pay minimums on the others. When that one's paid off, work on the card with the next highest rate.
• Don't close existing cards or open any new ones. It won't help your credit rating.
• Pay on time, absolutely every time. One late payment these days can lower your FICO score.
• Go over your credit-card statements with a fine-tooth comb. Are you still being charged for that travel club you've never used? Look for line items you don't need.
• Call your credit card companies and ask them nicely if they would lower your interest rates. It does work sometimes!

Save, Save, Save

Do whatever you can to retire debt. Consider taking a second job and using that income only for higher payments on your financial obligations. Substitute free family activities for high-cost ones. Sell high-value items that you can live without.

Do Away with Unnecessary Items to Reduce Debt Load

Do you really need the 800-channel cable option or that dish on your roof? You'll be surprised at what you don't miss. How about magazine subscriptions? They're not terribly expensive, but every penny counts. It's nice to have a library of books, but consider visiting the public library or half-price bookstores until your debt is under control.

Never, Ever Miss a Payment

Not only are you retiring debt, but you're also building a stellar credit rating. If you ever move or buy another car, you'll want to get the lowest rate possible. A blemish-free payment record will help with that. Besides, credit card companies can be quick to raise interest rates because of one late payment. A completely missed one is even more serious.

Do Not Increase Debt Load

If you don't have the cash for it, you probably don't need it. You'll feel better about what you do have if you know it's owned free and clear.

Shop Wisely, and Use the Savings to Pay Down Your Debt

If your family is large enough to warrant it, invest $30 or $40 and join a store like Sam's or Costco. And use it. Shop there first, then at the grocery store. Change brands if you have to and swallow your pride. Use coupons religiously. Calculate the money you're saving and slap it on your debt.
Each of these steps, taken alone, probably doesn't seem like much. But if you adopt as many as you can, you'll watch your debt decrease every month.