Tag: job

Tax Rules for Students Working

Scenario: An 18-year-old college student, who is claimed as a dependent on his parents’ tax return, decides to get a job. He wants to know how this will affect his parents’ return. 

There are three main concerns when a student takes up a job while being claimed on his parents’ tax return.

#1. Can my parents still claim me?

Your parents can still claim you even if you get a job, so long as you’re still under the age of 24 at the end of the year, remain a student, and you don’t provide over half of your support. Technically, you’re supposed to live with your parents, unless the only reason you’re not is because you’re going to school.

#2. Do you have to file a tax return?

Maybe. As a dependent, there are certain filing requirements you must meet to be required to file.

If your income comes solely from a W2 job and you haven’t married, you must have made over $12,550 (for the 2022 tax year). If you made less than this, you might still want to file if a refund is in order. Which leads us to our third concern.

#3. If I file, will I owe?

How much you’ll get back or owe boils down to your standard deduction. As a dependent, your standard deduction is the larger of $1,100 or the income you earned plus $350 (but not more than $12,550).

For example, you got a summer job and made $5,600. Your standard deduction is the larger of $1,100 or $5,600 plus $350. Your standard deduction is $5,950. On a straight-forward return like this, taxable income is 0 and there’s very likely a refund.

Note: It’s important for you and your parents to be on the same page. The best course of action is to consult a tax professional before getting a job to have a higher degree of certainty of what to expect come tax time.

Are You An Employee or Independent Contractor?

Willfully or through mistake, an employer can categorize an employee as an independent contractor. There are tax implications that result from this. To prevent this error, find out what makes an employee. If you’ve been miscategorized, there’s a few things you can do to stop this from happening again.

There are 3 main factors that determine the category a person falls in at work. Keep in mind these factors are not black and white. The thing to look for is which category these factors lean towards the most.

  1. Behavioral control: an employee’s work is to a great extent controlled by the company. As opposed to an independent contractor who’s in charge of the work process.
  2. Financial control: if you’re an independent contractor you’re in charge of providing your own supplies and resources to get the job done. If you’re an employee your company should provide what you need.
  3. Relationship: the most important aspect of employer-worker relationships is the permanency of the relationship. Is the worker expected to continue working for the company after a specific project is over? Contracts also factor in; however, a contract may classify a worker as an independent contractor even though every other factor points to employee status.

Consequence of being miscategorized:

Of the two, employees tend to be put in the wrong category the most. Employers might do so out of ignorance or a desire to avoid payroll taxes. Aside from missing out on timely tax payments, employees also miss out on certain benefits like overtime and vacation days.

Things to look out for:

Most companies hire payroll companies to handle employee paychecks. There are employers who choose to do their own payroll. Regardless of who handles payroll each check should have a breakdown that includes gross pay, employee taxes, and net pay.

What to do if you’ve been miscategorized:

  1. Speak with your employer so that the issue can be corrected.
  2. If employer disagrees on status, you can file Form SS-8 with the IRS. The IRS will review the issue then decide.
  3. If the issue isn’t resolved, you can always contact your state’s labor department. In California, the Labor Commissioner’s Office oversees wage disputes.

If you start a job and are given form W-9 but suspect that it should be form W-4, discuss your doubts with your employer. It’s possible the employer isn’t aware of the mistake.