Summer Income and Taxes

Students and other young people who earn summer income, including gig economy and other self-employment income, should prepare now for potential federal tax obligations. As a reminder, parents and guardians cannot generally include their dependents’ income on their own tax returns. Instead, young people who earn enough income to trigger a federal filing requirement must submit their own tax returns.

In particular, minors and young adults with self-employment earnings (including gig economy income) of at least $400 must file a federal tax return. In addition to federal income tax, these filers may also owe self-employment tax, which replaces the FICA (Social Security and Medicare) taxes that employers withhold from employee paychecks.

Americans of all ages with summer income from self-employment may need to pay estimated tax on a quarterly basis in order to avoid IRS penalties. Alternatively, if you have self-employment earnings but also work as an employee, you may ask your employer to withhold additional tax from your paychecks. The IRS Withholding Estimator tool (link below) can help you determine the correct withholding amount to cover your income and self-employment tax responsibilities.

As a reminder, young entrepreneurs may qualify to reduce their tax by deducting business expenses. In order to claim these deductions, you must maintain detailed records.

IRS Withholding Estimator: https://www.irs.gov/individuals/tax-withholding-estimator