With all the kids out of school for summer, some are looking to make some extra money by doing some work over the summer. But regardless of the what those kids are doing for extra money, there are some things they, and their parents should know.
Even if you’re paid under the table, you still may need to file and pay taxes. Cash that is paid to you for work that you’ve done is considered taxable income, you’ll need to report it even if the employer doesn’t issue you any tax forms. No matter what your employer does, you’ll want to do the right thing. If your employer is paying you under the table, or off the books, your employer may not be reporting wages paid to you to the tax authorities. That can be a big mistake on the employer’s part and can cost them money in penalties, fines, and unpaid taxes.
Sometimes people forget to consider local and state taxes. The focus on federal income taxes tends to be so overwhelming that kids (and their parents) forget about state and local taxes. Unlike federal returns which exempt some low-income workers from filing returns, some state and local tax authorities impose taxes on the first dollar of income. Check with your tax accountant to make sure about these taxes.
Since you may have to pay taxes it makes sense that you may be able to claim job related expenses. Kids who work for themselves, whether from mowing lawns, selling lemonade or some other entrepreneurial venture, can still claim job-related expenses on a Schedule C. Those expenses need to be related to your trade or business and considered “ordinary and necessary. Just make sure to keep all your receipts.
It’s a good experience for kids to have a summer job, just make sure to follow all the rules.