Military families aren't that different from others and like those others, a lot of military families will have a college student home for the summer. Hopefully their time home or at least part of their summer will involve earning some money. That is great. But, money earned, in almost all cases means taxes due. Here are four that military dependents (as well as others, in most cases) should be aware of.
ROTC Summer Camp. ROTC benefits while involved in the academic year (tuition and stipend) are tax free. Income earned while attending military training, also known as summer camp, on the other hand is taxable income. The income is subject to income tax and payroll tax (FICA).
Tips. If your college student is working where tips are earned, like the commissary, those tips are subject to taxation. If your child receives tips, he or she must keep a daily log to be able to report them. Your child must report $20 or more in cash tips in any month to his/her employer. The total tips for the year must be reported on your child's tax return.
Self-Employment. If your child starts a business (lawn care for instance) then he or she is self-employed. That means your child will owe 15.3% of that income, after expenses, in the form of self-employment tax. Self-employment tax replaces the total amount that would have been paid in FICA if your child was employed.
GI Bill and Scholarships. Scholarships are tax free if used for qualified education expenses such as tuition and fees. If your child is attending an in-state school and using the GI Bill, then all qualified education expenses are paid by the VA. In this scenario your child would by necessity use scholarships for expenses that are not qualified education expenses, such as room and board. The scholarships would then be included in taxable income and if the summer job was pretty good or the scholarships are relatively large, there could be a surprise come next April. It is worth noting though, that the VA stipend for living expenses is not taxable income.
Working while in college (and high school for that matter) can help lay the groundwork for a successful future career. The money doesn't hurt either...just remember that taxes will be due.
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