Back-to-school season is in full swing but summer is not quite over yet. Before working students pack up to head back to campus, now is a good time to take note of information that will be needed come tax time in spring 2018.
Summer income is taxable – plan now for fewer spring headaches
For students hard at work this summer, accounting for tax season is probably low on the priority list. However, doing some note-taking now will ease tax prep in the months ahead. These are a few issues students should be aware of now:
- Withholding and estimating tax – For most students, taxes would have been taken out by their employers. For those who are self-employed, however, taxes were not withheld and the student is responsible for estimating and paying income taxes quarterly. Expect to have a filing and payment due before the end of the first semester!
- Tip income – Employees must pay taxes on tip income and tips need to be reported on annual tax filings. Do not wait until next March to tally up what was earned; keeping an ongoing log is the best way. Most tips need to be reported to the employer anyway; once you receive more than $20 in cash in a single month, you must report the rest of your tips for the month.
- Self-employment earnings are taxable – Flexible jobs like babysitting can still be subject to taxation. Students should keep good records of earnings as well as expenses because the expenses may be deductible.
Don’t forget scholarships, grants, and work study
Regardless of whether they continue working during the school year, students may have taxable income. Money received through scholarships is usually tax-free, but only if certain requirements are met:
- The student is a candidate for a degree at an institution described by 170(b)(1)(A)(ii) of the Internal Revenue Code (which requires that the institution’s primary function is formal education and that it has a regularly-attending student body);
- The funds are used to pay for tuition and fees at the institution or books, supplies, or equipment required for the course of study; and
- The money is not payment for services unless it is provided for under the National Health Services Corps Scholarship Program or the Armed Forces Health Professions Scholarship and Financial Assistance Program.
Work-study, as payment for services, is taxable unless it is under one of the two earlier-mentioned programs. The taxes are generally lower, though, because for full-time students working part-time through a qualifying program, they are not subject to Social Security and Medicare taxes.
Seasoned tax advice in Maryland
The state and federal tax laws are continually changing, making it tricky for busy students and parents to keep up. At Rosenberg Martin Greenberg, we stay on top of the law so you can rely on up-to-date advice. To discuss your income tax obligations and strategies with experienced Maryland tax attorneys, do not wait to call for a consultation.
Additional “Back to School Tax Issues” Resources:
- IRS, Tax Tips for Students Working this Summer, https://www.irs.gov/uac/tax-tips-for-students-working-this-summer
- IRS, Back-To-School Education Tax Credits, https://www.irs.gov/uac/back-to-school-education-tax-credits
- IRS, Grants, Scholarships, Student Loans, Work Study, https://www.irs.gov/help-resources/tools-faqs/faqs-for-individuals/frequently-asked-tax-questions-answers/interest-dividends-other-types-of-income/grants-scholarships-student-loans-work-study/grants-scholarships-student-loans-work-study