Here it’s summer again!! Nature is lively. Of all this, the best part is that schools are off !! Being a student gives you a chance to take a summer job to earn extra money or save for later. However, as you earn from summer jobs, there are certain aspects that you must realize to report this income, and you may even have to pay taxes. This article will guide you through the tax facts that can help all students with summer jobs.
Fill Out Form W-4
So if you’ve got your first job, congrats! Now it’s time to see how you can make it easy to file taxes. Fill out Form W-4, which enables your employer to determine the amount of tax they will withhold from your paycheck. If you have multiple summer jobs, ensure all your employers withhold an adequate amount of taxes to cover their total income tax liability.
Keep proper records of your Self-Employment Income.
This summer, your earnings are considered taxable if you have taken up babysitting, pet-sitting, mowing lawns, etc. Thus, keep a good record of all income and expenses related to your work. You may be able to deduct some of those costs from your income.
No matter how much your summer job is, your employer is supposed to withhold social security and Medicare taxes from your income. So make sure your employer withholds taxes from your payment. If you are self-employed, you must pay the taxes that count for your coverage under the Social Security System.
Report your Tip Income
Have you earned tips from your job? Often babysitters or waiters receive cash tips from customers. In that case, you must report them as they are taxable income. If you receive tips directly from customers, you must keep a record of all your tips and report them.
Check Your Dependency Status
Going to college is a life-changing step. You start gaining control of your life. However, you will need to contact your parents to confirm your dependency status. According to the IRS, if you are 19 years old, your parents can claim you as a dependent. In such cases, you are not eligible to claim deductions or credits yourself. As a student, your dependency status can be extended until you are 24 years old. Keep in mind to indicate that someone else can claim you as a dependent on your tax return.
Claim Education Tax Credits:
As a student, certain tax credits can help you reduce your tax expenses. Keep up with the education tax credits.
American Opportunity Credit: If you are an undergraduate and have not completed the first four years of post-secondary education at the beginning of the year, then claim the American Opportunity Credit. According to the IRS, if you have half the full-time workload for at least one of your academic periods, you qualify for this tax credit. In that case, you will allow a maximum annual credit of $2500 on the cost of tuition, fees, and course materials paid during the tax year. The distinction is 40% refundable up to $1,000.
Lifetime Learning Credit: In the Lifetime Learning Credit, you can qualify to claim a credit of up to $2,000 on qualified education expenses. Note that this is nonrefundable, and you won’t get money returned. It can only reduce what you owe. Your Lifetime Learning Credit can be reduced if your modified adjusted gross income is between $59,000 and $69,000 as a single filer. In the case of joint filing, the gross-income can should range from $ 118,000 and $ 138,000.
Deduct Your Student Loan Interest
It is known as student loan interest when you take a loan solely to pay qualified education expenses. To qualify for your deduction, you must have paid interest on a qualified student loan in the tax year 2020 and your modified adjusted gross income must be less than $90,000 single or $180,000 jointly.
Scholarships and Taxes
Each student applies for scholarships and grants in applying for college. There is a tax benefit in this regard. Your scholarships, grants, and fellowships are considered tax-free. The expenses related to scholarship include- tuition, fees for enrollment, books, supplies, and equipment required by your college.
Remember these tips and aspects when you file taxes as a student. For more support and guidance, Ahad&Co, the best tax accounting firm, is always at your service.