School's almost out!
Schools almost out and it’s summer job time. Here are five things you should know before you go to work:
1. The federal minimum wage is $7.25 an hour, but if you’re under 20 years old and you’re a new hire, the business can legally pay you $4.25 for the first 90 days of your job. There are also exceptions to the minimum wage laws for student workers, student learners and persons with disabilities; so if you fall into one of those categories you may not receive the $7.25 per hour even if you work longer than 90 days.
2. The minimum wage for people who get tips is $2.13 per hour, (basically restaurant wait staff) if that amount plus your tips brings you up to the minimum wage. If you’re working in a restaurant keep really good track of the tips you receive. Every night you’re going to want to count out your tips and write it down. (It’s called a tip log.) You might need this as evidence at tax time that you didn’t really make as much money as your employer claims you did.
3. Wages: if your employer is going to pay you “wages”, you will need to fill out a W4 form. Here’s what one looks like: http://www.irs.gov/pub/irs-pdf/fw4.pdf Don’t bother with all the questions at the top, just go straight to the bottom part where you start filling in your name and address. Check the box that you are single. On line 5 you are going to write 0 exemptions. If this is your first job ever and you’re only going to work over the summer and you are positive that you won’t make over $5,600 for the entire year, then write the word “exempt” on line seven. That means you’re telling your boss that you don’t want any federal income tax withheld. If you want to get a refund next April, then don’t write exempt, just keep the 0 on line 5 so there will be withholding.
4. Social security and medicare. It’s kind of hard to wrap your head around the idea that you’re paying social security and medicare taxes when you’re only 16 or 17, but you are. When you get your first paycheck, even if you say that you don’t want any federal income tax withholding, you will still be paying social security and medicare taxes. Let’s say that you get a job at $7.25 an hour and you worked for 20 hours before your first paycheck. Your pay should be $145. Your check though will only be for $136.81, because your employer has to take out $6.09 for social security and $2.10 for medicare.
5. Self employment. Some employers don’t want the hassle of handling payroll taxes on their summer help. They don’t give you a W4 form to fill out for your withholding, they give you a W9, it looks like this: http://www.irs.gov/pub/irs-pdf/fw9.pdf?portlet=3 What that means is your boss isn’t going to pay your social security and medicare taxes for you—you’ll have to do it yourself. This is really important—if you are a W9 worker, then you’ll have to pay income taxes in April. It means that you are self-employed and that you own your own business. Generally, students who make less than $5600 a year pay no income tax come April, but if you are self employed, you will pay taxes if your income is over $400. Every year I have to help students who found they had to pay taxes they had no idea they owed. It’s okay to work a W9 job, but know that you’re going to have to pay taxes on it. Here’s a link for more details on that: http://robergtaxsolutions.com/2010/09/employee-or-contract-labor/
Good luck with your job hunt and have a great summer!
I was recently asked about getting a stipend, so I thought I should mention that here. A stipend is when a school pays you for work at the school, this is different from a work study job where you get a W2. A stipend is usually considered to be a fellowship or grant for research. If the money from your stipend is used to pay your tuition, then it’s tax free, if not, then it’s taxable. You’ll report that on line 7 of your tax return, just like you would wages and you’ll write SCH on the dotted line next to it. The term stipend is usually used with graduate students, not high school students. If you’re a teenager and your employer says stipend, he could be meaning contract labor. Make sure you find out for sure. A contract labor job should pay 7% more than a wage job to make it worth your while.