United States: School Is Out And Summer Employment Is In: Tax Tips For Students

Employment during the summer is a great opportunity for students to build a résumé, gain experience, create valuable connections and develop some financial independence. Summer jobs can also provide students with spending money, assist with college tuition payments (or more realistically, one semester of books) and potentially offer practical experience for a future career. Summer employment offers experiences often not available or cannot be replicated in a classroom.

Along with such benefits, summer employment will introduce students to a five-letter word that up until this point in life probably had very little meaning, but will affect them regardless of the amount of income earned—taxes! They will learn the reality that earning $15 an hour does not equate to $15 an hour in their pocket. 

Here are a few notable tax tips for students with or contemplating summer jobs: 

Employee Paperwork

When you get a new job, you will need to complete IRS Form W-4, Employee's Withholding Allowance Certificate. Employers use this form to determine how much federal income tax to withhold from your pay. The lower the number of "exemptions" claimed, the higher your income tax withholding. Conversely, the higher the number of "exemptions" claimed, the lower your income tax withholding.  Irrespective of amounts withheld for income taxes, Social Security and Medicare tax will be withheld at a 6.2 percent and 1.45 percent rate, respectively, and is not available for refund unless you earn more than $118,500. A student should be so lucky.

If you are treated as an employee, your employer withholds tax from your paychecks. If you are treated as self-employed (think babysitting, lawn care, painting—see Self Employed Individuals), you may have to pay estimated tax directly to the IRS on set dates during the year. If you earn $400 or more, you will need to file a federal tax return.

Self Employed Individuals

Like many students, you may have multiple informal jobs, such as babysitting, lawn care, hardscaping, painting, swimming lessons and the like. Earning $400 or more may subject you to self-employment tax reporting. While self-employment income can be offset by qualified expenses incurred for the production of the self-employment income, it is crucial to keep detailed records of receipts and expenses incurred and paid. Also, be aware of the hobby loss rules, which limits the deduction of losses from income when there is no profit motive. The hobby loss rules are complex and beyond the scope of this Alert. However, if you or a family member is self-employed, be sure to seek professional advice for proper tax reporting guidance. Under either an employee or self-employed situation, it is prudent to set aside money to pay the tax that may be due when the returns are filed.

Employed by Parent

Working with mom or dad has many non-tax and tax benefits. From a tax perspective, bona fide wages paid by a parent to a child who is under the age of 18 are not subject to Social Security and Medicare taxes, or Federal Unemployment Tax (FUTA). Wages paid to your child who is 18 years or older, but under 21, are not subject to FUTA. Additionally, parents may claim the child's wages as a deductible business expense provided the child is treated as a regular employee, wages are paid in dollars (as opposed to food, shelter, etc.) and a W-2, Wage and Tax Statement is filed.

Keep Track of Your Expenses

You may be eligible for several tax deductions such as union and professional dues, qualified education expenses and job-related expenses if you itemize expenses on your tax return. Moving expenses and student loan interest may also be deductible, whether or not you itemize expenses. Keep close track of your expenses and you may be able to reduce your tax liability. Then consider investing the refund in a Roth IRA (see Retirement Planning).

Tip Income

The service industry is where many students land summer employment and where compensation is primarily tip driven. All tip income is taxable. Any cash tips of $20 or more per month are required to be reported to the employer. Also, you must report all of your yearly tips on your tax return.

The key to accurately reporting tip income is organization and detailed recordkeeping. In the event of an IRS audit targeting unreported tip income, interest and penalty assessments can be significant. There are a variety of recordkeeping techniques and resources available to assist with accurate reporting of tip income, including tip tracking apps. Popular apps, such as Just the Tips, TipSee and Tip Log, may help keep track of daily, weekly and monthly tips as they are earned and recorded.

Out-of-State Employment Adds Complexity

Another consideration to keep in mind while engaged in seasonal employment is the job location. Physically working in one state but residing in another state can add certain complexities to tax reporting, including the filing of additional state income tax returns. In most  states, taxes will be withheld and paid to the state of employment. 

However, reciprocal agreements, which many states have in place with neighboring states, eliminate the complexity and the need for non-resident state tax withholding from the wages of non-resident seasonal employees. For example, if you reside in Pennsylvania but work in Indiana, Maryland, New Jersey, Ohio, Virginia or West Virginia, the out-of-state employer will withhold Pennsylvania income taxes with no taxes withheld or paid to that employer’s state. The table below summarizes states with reciprocal agreements presently in place.

States with Reciprocal Agreements

Resident State State You Are Employed In
Any State District of Columbia
Illinois Iowa, Kentucky, Michigan or Wisconsin
Indiana Kentucky, Michigan, Ohio, Virginia, West Virginia or Wisconsin
Iowa Illinois
Kentucky Illinois, Indiana, Michigan, Ohio, Virginia, West Virginia or Wisconsin
Maryland District of Columbia, Pennsylvania, Virginia or West Virginia
Michigan Illinois, Indiana, Kentucky, Minnesota, Ohio or Wisconsin
Minnesota Michigan or North Dakota
Montana North Dakota
New Jersey* Pennsylvania
North Dakota Minnesota
Ohio Indiana, Kentucky, Michigan, Pennsylvania or West Virginia
Pennsylvania Indiana, Maryland, New Jersey, Ohio, Virginia or West Virginia
Virginia District of Columbia, Kentucky, Maryland, Pennsylvania or West Virginia
West Virginia Kentucky, Maryland, Ohio, Pennsylvania or Virginia
Wisconsin Illinois, Indiana, Kentucky or Michigan

* New Jersey has proposed legislation to eliminate the reciprocal agreement in place with Pennsylvania.

If you are working in a state without a reciprocal agreement with your resident state, you will be  subject to both resident and non-resident state income taxes. For example, if you reside in Pennsylvania but work in New York, you will need to file in both states. However, in most cases a credit for taxes paid to the non-resident state will be available on your resident state tax return subject to certain limitations. Multi-state tax reporting is complex and rules vary from state to state, so be sure to seek professional advice if you find yourself in this situation.

Retirement Planning

It’s never too early for retirement planning and wealth accumulation. The power of compounding is magical. Students with summer jobs should consider contributing to a Roth IRA. Since contributions to a Roth IRA are funded with after-tax dollars, they provide for tax-free growth and more importantly tax-free distributions in retirement. The only eligibility requirement to contribute to a Roth, assuming the student’s income will not exceed income limitations, would be earned income. You can contribute up to the amount of money earned for the year, with a maximum contribution of $5,500. So, a yearly contribution of $5,500 for the first six years with no additional contributions for 40 years until retirement at 6.5 percent annually results in a whopping balance of nearly $500,000.

If you would like more information about this topic or your own unique situation, please contact Rodney N. Anello, EA, or the Tax Accounting Group practitioner with whom you are regularly in contact. For information about other pertinent tax topics, please visit our publications page located here.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions