Students Starting a Summer Job – Final Two Tips

Tip #5  Understand How Taxes Work With an Out-of-State Summer Job:

If you reside in Illinois and your dependent child gets a summer job out-of-state, your child is considered an Illinois resident  and will need to file an  Illinois return based on Tip #2.  If the job is in Iowa, Kentucky, Michigan or Wisconsin, a reciprocity agreement exists with Illinois.  This means the out-of-state employer will withhold and pay Illinois taxes and no taxes should be paid to that employer’s state.  In most other states, taxes will be withheld and paid to the state of employment.  In those cases, an Illinois return and a non-resident return for the state of employment will need to be filed.  The good news is, any taxes paid in the other state will be a credit on the Illinois return.  Tax rules differ from state to state so it is a good idea to do your homework and understand the income tax filing requirements for the employer’s state.

Tip #6 Understand Roth IRA Eligibility and Benefits:

Something else to think about if your child gets a summer job is that he or she will be eligible to start making Roth IRA contributions.  While retirement may seem like eons away for your newly working teen, the power of compounding is amazing.  In addition, the contributions can be withdrawn tax-free and penalty-free at any age and the earlier they begin contributing, the greater the earning potential.

As you can see, there is a lot to keep-in-mind as your child begins exploring summer job opportunities since the tax implications can be complex.

If you have further questions or concerns, please do not hesitate to contact:

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 810-991-1761