I just received my IRS newsletter and they offered a tax guide about teens getting summer jobs.  I was going to blog about that anyway, so I thought I’d read their guide and use a lot of their points.  Here’s the link:   http://www.irs.gov/pub/irs-utl/oc_-_may_-_summrjobtips_050211.pdf.  If you took a look, you’ll notice that they even set it up for folks like me to copy and paste.  Kinda sweet.

But here’s my problem with it, the page says that if you do odd jobs like babysitting or lawn mowing then you have to record that as self employment and pay self employment tax on it.  That means that if I hire Alex from across the street to mow my lawn once a week, and I pay him $25 a week for the entire  lawn season—that’s 28 weeks where I live, he’ll have earned $700 and, according to that IRS newsletter, he’ll have to pay self employment taxes on that.  Normally, a student earning only $700 would pay no taxes at all, but because Alex is self employed, he’d have to pay about $90.   Suddenly that lawn mowing job isn’t looking so good. 

Let’s call the IRS to the rescue!  You see, in IRS publication 926 (yes that sounds awfully dull but ya gotta fight fire with fire) the IRS lists jobs that are considered to be “household workers”.  One of those jobs is a yard worker, like Alex.  (Babysitter is another one.)   What makes a household worker an employee is if the homeowner controls not only what work is done, but how it’s done.  For example, I want Alex to mow my lawn on Thursdays.  I want the grass shorter in the spring and longer in the summer, and I want him to leave the clippings on my lawn unless it’s really overgrown.  Alex doesn’t have a lot of say in this so that makes him an employee. 

Why does any of this matter?  Because as a household employee, Alex doesn’t have to pay self employment taxes, that would be his employer’s job (that would be me.)  But it gets better, since I’m only paying him $700 this year, his wages from me are below the threshold for having to pay social security and medicare taxes so we’ve got a “win/win” situation.  As long as the employer pays a person less than $1,700 in a year, then there are no employment taxes.  Alex can work and keep his whole $700.

Now here’s the best part of all—Alex is only 16.  If you hire a household worker who is under age 18 at any time during 2011, you do not pay employment taxes at all.  I could give Alex a raise (please don’t let him read this, okay?)  I could also hire him to do some landscaping work in addition to mowing my lawn.  Let’s say that I paid Alex $3,000 for work he did in my yard.  If he filed a tax return as being self employed, he’d pay almost $400 in self employment taxes for 2011.  As my household employee, he pays $0.   (I live in Missouri, so if I paid Alex over $1000 per quarter, I would have to pay for unemployment insurance, but that would by my expense, the boss, not the employee.)

So, if you’re looking for summer work and you’re under 18, don’t overlook those old standbys of babysitting and lawn care.  And if somebody tries to make you pay self employment taxes, tell them to go read Publication 926.  It’s all there in writing.  http://www.irs.gov/publications/p926/ar02.html#en_US_publink100086722