Withholding Break for Student Workers
By: Sue Kieval, E.A.
The Henssler Financial Group Position Paper

I bet you thought everyone who is an employee is required to pay federal withholding tax as they earn the money. After all, withholding tax is a "pay as you earn tax," right? Well, for students who have summer or part-time jobs, the IRS has decided it is not necessary to pay withholding if certain requirements are met. This enables students to keep more of their money as they earn it and releases them from the burden of filing in April in order to get everything back they have paid in. In most cases, students are exempt from paying federal withholding under the following circumstances:

Student workers are still required to pay the Social Security and Medicare taxes, but if they meet all of the rules listed above, they can elect not to have any withholding taxes taken out of their paychecks. If you have a student who falls under these guidelines, you may want to have him/her resubmit a W-4 to stop this deduction.

Students who work in jobs where tips are part of the income must keep careful track of these earnings and include them when determining if they meet the criteria above. Also, if the tips total more than $20 in one month, they must be reported to the employer by the middle of the next month.

For those who like the idea of receiving a little "bonus" in the spring, then continuing to pay withholding and filing to get it back may be the preferred way to go. But those who can meet all the IRS requirements above and like the idea of having a little more money in their pockets each payday should consider eliminating the withholding deduction altogether.

As always, if you would like further information regarding this topic or any other tax related issue, please contact The Henssler Financial Group Tax & Accounting Division at 770-428-4025.