What income earned by students is taxable?

Article ID: 34232  

What income earned by students is taxable?


The following kinds of income often received by students are generally taxable.

  • Pay for services performed

  • Self-employment income

  • Investment income

  • Certain scholarships and fellowships

    Pay for Services Performed

    When figuring how much income to report, include everything you received as payment for your services. This usually means wages, salaries, and tips.

    Wages and Salaries The amount of wages (including tips) or salaries you received during the year is shown in box 1 of Form W-2, Wage and Tax Statement. Your employer will give you Form W-2 soon after the end of the year.

    Tips All tips you receive are income, and subject to income tax. This includes tips customers give you directly, tips customers charge on credit cards that your employer gives you, and your share of tips split with other employees.

    Keep a daily record or other proof of your tips. You can use Form 4070A, Employee's Daily Record of Tips. Your daily record must show your name and address, your employer's name, and the establishment's name. For each day worked, you must show the amount of cash and charge tips you received from customers or other employees, a list of the names and amounts you paid to other employees through tip splitting, and the value of any noncash tips you get, such as tickets, passes, or other items of value. Record this information on or near the date you receive the tip income.

    Reporting tips to your employer If you receive cash, check, or credit card tips of $20 or more in any one calendar month while working for one employer, you must report the total amount of your tips to your employer by the 10th day of the next month. If the 10th falls on a Saturday, Sunday, or legal holiday, give your employer the report on the next day that is not a Saturday, Sunday, or a legal holiday.

    To report your tips, you can use Form 4070, Employee's Report of Tips to Employer. To get a year's supply of this form, ask your employer or call the IRS for Publication 1244, Employee's Daily Record of Tips and Report to Employer. Fill in the information asked for on the form, sign and date the form, and give it to your employer. If you do not use Form 4070, give your employer a statement with the following information:

    • Your name, address, and social security number

    • Your employer's name, address, and business name (if it is different from the employer's name)

    • The month (or the dates of any shorter period) in which you received tips

    • The total tips required to be reported for the period

      Withholding on Tips Your employer must withhold social security tax and Medicare taxes or railroad retirement tax, and any income tax due on the tips you report. Your employer usually deducts the withholding due on tips from your wages. If your wages are too small for your employer to withhold taxes, you may give him or her extra money to pay the taxes up to the close of the calendar year. Your employer should tell you how much is needed.

      Any taxes that remain unpaid may be collected by your employer from your next paycheck. If withholding taxes remain uncollected at the end of the year, you may be subject to a penalty for underpayment of estimated taxes. See Publication 505 , Tax Withholding and Estimated Tax, for more information.

    • Form W-2

    • The tips you reported to your employer will be included with your wages in box 1 of Form W-2. Federal income tax, social security tax, and Medicare tax withheld on your wages and tips will be shown in boxes 2, 4, and 6, respectively.

      Your Form W-2 may show an amount in box 8, "Allocated tips." This is an additional amount allocated to you if tips you reported to your employer were less than the minimum amount expected to be earned by employees where you work.

      If you do not have adequate records of your actual tips, you must report at least the amount of allocated tips shown in box 8 on your Form W-2.

      If you have adequate records, report your actual tips on your return. For more information on allocated tips, see Publication 531 , Reporting Tip Income.

      If you did not report tips to your employer as required, you may be charged a penalty in addition to the tax you owe. If you have reasonable cause for not reporting tips to your employer, you should attach a statement to your return explaining why you did not.

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Views: 1404 Created on: Jun 15, 2013