Graduation and First Job and Taxes, Oh My!

Rhea-AI Summary

Wolters Kluwer Tax & Accounting addresses tax challenges faced by young adults entering the workforce. Many are surprised by the deductions from their first paycheck. Understanding tax law basics is crucial for informed financial decisions. Key tax issues include:

• Employee vs. Independent Contractor: Different taxation applies.
• Form W-4: Determines income tax withholding.
• State Taxes: Potential multi-state obligations.
• Business Expenses: Different deductibility rules.

Tax expert Mark Luscombe is available for discussions.

Wolters Kluwer Tax & Accounting looks at Tax Issues Facing Young Adults Starting Out in the Working World

Wolters Kluwer:

What: For many entering the workforce for the first time, that first paycheck can be a bit of a shock – why is there such a significant difference between gross and take-home pay? What are all these deductions? Welcome to the world of taxes. Taxes can be influenced dramatically by the type of job you have and some of your choices.

Why: Understanding some of the basics of tax law can help you understand your options and help you make informed decisions about your financial future. Some of the potential tax issues you are likely to face include:

• Employee vs. Independent Contractor. How you are taxed varies greatly depending upon whether you are considered an employee of a company or whether you have your own business doing work for other companies or individuals. Some employees who have gigs on the side may be both an employee and an independent contractor
• Form W-4. Employees are likely to be required to complete a Form W-4 which will help determine the amount of income tax withholding from your pay each pay period, and should receive a Form W-2 at tax time, documenting the pay and amount withheld for the year. A company may ask Independent contractors to complete a Form W-9 which will give them your tax identification number to provide a Form 1099 to you and the IRS at tax time, documenting the amounts you received from that company for the year. Independent contractors may also be required to pay estimated taxes, since your income is not subject to withholding, and self-employment taxes for Social Security and Medicare
• State taxes. There are not only federal taxes to worry about but also possible state income taxes, potentially involving multiple states if your work involves travel to different states
• Benefits. As an employee, you may be eligible for benefits related to tax-favored retirement plans, employer health plans and other employee benefits. As an independent contractor, you will be responsible for identifying your benefit programs
• Business expenses. As an employee, out-of-pocket business-related expenses not reimbursed by your employer are generally no longer tax deductible. As an independent contractor, your ordinary and necessary business expenses are generally deductible on Schedule C of Form 1040 or on a tax return for your separate business entity
• Dependent status. Moving into the working world may make you no longer qualified to be a dependent on your parents’ tax return
• Student loans. Tax issues with the deduction of interest on student loans are another issue that may require a discussion with parents
• IRAs. With earned income, individuals now may qualify for tax-advantaged contributions to Individual Retirement Accounts or Roth IRAs
• Tax deductions and credits. There are some other possible tax deductions and credits to which you may be entitled depending upon your particular circumstances
• Keeping records. It will be important to get in the habit of keeping good records to support any items claimed on the tax return

Who: Tax expert Mark Luscombe, JD, LL.M, CPA, is available to discuss tax law issues with which someone beginning their first job should become familiar.

Contact: To arrange interviews with Mark Luscombe or other state or federal tax experts from Wolters Kluwer Tax & Accounting on this or any other tax-related topics, please contact:

View source version on businesswire.com: https://www.businesswire.com/news/home/20220613005247/en/

KELLY DE CASTRO

614-288-5640

Kelly.deCastro@wolterskluwer.com

Source: Wolters Kluwer Tax & Accounting

FAQ

What tax issues do young adults face when starting their first job?

Young adults may encounter various tax issues including employee versus independent contractor taxation, understanding Form W-4 for tax withholding, state tax obligations, and the impact of business expenses.

Who can provide insights on tax law for young adults?

Tax expert Mark Luscombe from Wolters Kluwer Tax & Accounting is available to discuss tax law issues relevant to young adults.

What is the importance of understanding tax deductions and credits for new workers?

Understanding tax deductions and credits can help new workers maximize their tax benefits based on their specific circumstances.

How does being an independent contractor impact taxation?

Independent contractors may pay estimated taxes and submit a Form W-9, unlike employees who typically have taxes withheld from their paychecks.

What are the implications of student loans on taxes for new workers?

New workers may need to discuss student loan interest deductions with their parents as their tax status changes.