Paying Taxes for Summer Job

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MPMP
Posts: 72
Joined: Thu Sep 25, 2008 7:32 pm

Paying Taxes for Summer Job

Postby MPMP » Wed Apr 13, 2011 8:37 pm

This may be a retarded question, but I'm sure someone will know the answer. Can we get back the state and federal income taxes we will pay as summer associates? I know as an undergrad this was the case, and I got huge tax returns every spring because I was a student, but I'm not sure if this applies to grad students as well.

If not, are those of you with BigLaw gigs basically getting hosed and losing like .. 7 or 8k this summer to taxes?

MPMP
Posts: 72
Joined: Thu Sep 25, 2008 7:32 pm

Re: Paying Taxes for Summer Job

Postby MPMP » Wed Apr 13, 2011 9:18 pm

G. T. L. Rev. wrote:O HAI. I'm the Internal Revenue Code. Don't think we've met yet . . . .

In all seriousness, the answer to your question is that you will likely get a decent refund (depending on your definition of "decent"), but that you will also end up paying a non-negligible amount of state and federal income tax. How much tax you ultimately pay will depend on several factors, including (1) whether you have any other income; (2) whether you have engaged in any tax planning/reduction measures, such as use of a 529 account or Roth IRA; and (3) whether there are any credits or deductions you can claim. Further, the amount you get as a refund will depend in part on how aggressive your firm is about withholding -- more up front withholding = larger refund later (but this also means you will have given an interest-free loan to uncle sam for several months).

There is no exemption from paying tax as a student. To the extent you paid little or no tax previously when you worked as a student, that result likely attached either because you had very little taxable income, or because you violated the law.

As a very rough, general example, one person I know of had an effective federal income tax rate of ~7% their 2L summer (using their total tax paid after filing, line 55 on form 1040, as the numerator and their AGI, line 37 on form 1040, as the denominator). Add in state and local income tax, if applicable, and you are probably looking at an overall effective tax rate of somewhere between 10 and 15% if you play your cards right. Higher if you don't.

Either way, I would hardly call that "getting hosed." We pay tax as part of the cost of living in a civilized society, after all...


Thanks - that was definitely helpful. And I didn't mean I didn't pay any taxes, but it seemed like I got my entire federal and state taxes back when I filed my returns. My income was under $6,000 though, which I think means I was exempt.

Sup Kid
Posts: 557
Joined: Sat Oct 23, 2010 2:49 pm

Re: Paying Taxes for Summer Job

Postby Sup Kid » Wed Apr 13, 2011 11:01 pm

MPMP wrote:Thanks - that was definitely helpful. And I didn't mean I didn't pay any taxes, but it seemed like I got my entire federal and state taxes back when I filed my returns. My income was under $6,000 though, which I think means I was exempt.

Yes, you were exempt when you made less than $6000. As a general rule of thumb, you will be exempt from paying income taxes (but not social security or medicare) if you make less than $9350 -- that is the sum of the standard deduction ($5700) and your personal exemption ($3650).

In regards to your question about state taxes, I'm guessing that you heard somewhere that you can deduct your state taxes from your federal ones (if this isn't the case, you can disregard this). You can do this, and probably will if you are making $160,000 after law school, but it only makes sense to do this if your state/local taxes are greater than the $5700 standard deduction, so it most likely won't pay to do this over the summer. Also note that this is a deduction, not a credit, so you are just subtracting the amounts from your earnings and then paying taxes on what is left -- you are not deducting the amounts from the actual tax you are paying. HTH.

Edit: Just ran the numbers and if you are making market salary in NY ($30770 for 10 weeks) this summer (as a single taxpayer and with no itemized deductions), your total tax liability should be ~$6250, including federal income tax, NY state tax, and Social Security & Medicare taxes, which totals approximately 20% of your pay. If you're working in a different state, making a different salary, or have to pay NY city taxes, the numbers will slightly change.

Sup Kid
Posts: 557
Joined: Sat Oct 23, 2010 2:49 pm

Re: Paying Taxes for Summer Job

Postby Sup Kid » Wed Apr 13, 2011 11:44 pm

G. T. L. Rev. wrote:
Sup Kid wrote:Edit: Just ran the numbers and if you are making market salary in NY ($30770 for 10 weeks) this summer (as a single taxpayer and with no itemized deductions), your total tax liability should be ~$6250, including federal income tax, NY state tax, and Social Security & Medicare taxes, which totals approximately 20% of your pay. If you're working in a different state, making a different salary, or have to pay NY city taxes, the numbers will slightly change.

Interesting. Did you include the lifetime learning credit in that? It makes a HUGE difference for many SAs.

I didn't but you're right. Assuming you pay $10,000+ in tuition and fees during the year, you can be eligible for a tax credit of $2000, which obviously greatly reduces your total tax liability.

And just for the hell of it:

IRS Circular 230 disclosure: To ensure compliance with requirements imposed by the IRS, I inform you that any U.S. Federal tax advice contained in this document is not intended or written by us to be used, and cannot be used, (i) by any taxpayer for the purpose of avoiding tax penalties under the Internal Revenue Code or (ii) for promoting, marketing or recommending to another party any transaction or matter addressed herein. Also, I'm not a lawyer, so this isn't, and shouldn't be interpreted to be, tax advice. If you're actually about to rely on anything I wrote, don't, and go find yourself a real tax professional. :lol:
Last edited by Sup Kid on Wed Apr 13, 2011 11:54 pm, edited 1 time in total.

User avatar
AreJay711
Posts: 3406
Joined: Tue Jul 20, 2010 8:51 pm

Re: Paying Taxes for Summer Job

Postby AreJay711 » Wed Apr 13, 2011 11:54 pm

Paying taxes is for pussies. If you can't hide your income what makes you think you'll be a good lawyer?

Renzo
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Joined: Tue Dec 02, 2008 3:23 am

Re: Paying Taxes for Summer Job

Postby Renzo » Thu Apr 14, 2011 12:07 am

I had an effective tax rate of -12.51% last year. Booyah, refundable credits and negligible income!

LurkerNoMore
Posts: 237
Joined: Thu Oct 09, 2008 12:05 pm

Re: Paying Taxes for Summer Job

Postby LurkerNoMore » Thu Apr 14, 2011 7:24 am

Another quirk to be aware of.

When an employer figures your withholding, the calculation generally runs assuming that each pay period is a constant amount of your yearly income (in other words, if you are getting paid monthly, that the paycheck you are getting is 1/12 of the amount you are earning for the year). This can lead to massive over-withholding. As a summer associate at a big firm, the default rule will pull taxes out as if you are going to make $160,000 instead of $30,000.

There are two ways to deal with this.

One, some employers (not all, though) will override the default if you like and pull on the basis of the actual amount you will be earning from them. If you have no other income sources and are not married (and have spousal income to consider), this can bring your withholding down to a more realistic number. If you do have other income sources or spousal income, you can wind up pulling too little, though.

Second, you can adjust your W-4. If you go to http://www.irs.gov/individuals/article/ ... 96,00.html you can get a rough estimate of the taxes you will owe and how many allowances you should take. Remember, allowances are *not* the same thing as dependents. The W-4 form itself makes it seem like you can only claim allowances for dependents, but that worksheet is just a simplified way of estimating the number of allowances you need to take to get to the proper withholding number.

Otherwise, you can give the gov't an interest-free loan for a few months and get a fat refund next spring.

Sup Kid
Posts: 557
Joined: Sat Oct 23, 2010 2:49 pm

Re: Paying Taxes for Summer Job

Postby Sup Kid » Thu Apr 14, 2011 12:40 pm

LurkerNoMore wrote:Another quirk to be aware of.

When an employer figures your withholding, the calculation generally runs assuming that each pay period is a constant amount of your yearly income (in other words, if you are getting paid monthly, that the paycheck you are getting is 1/12 of the amount you are earning for the year). This can lead to massive over-withholding. As a summer associate at a big firm, the default rule will pull taxes out as if you are going to make $160,000 instead of $30,000.

There are two ways to deal with this.

One, some employers (not all, though) will override the default if you like and pull on the basis of the actual amount you will be earning from them. If you have no other income sources and are not married (and have spousal income to consider), this can bring your withholding down to a more realistic number. If you do have other income sources or spousal income, you can wind up pulling too little, though.

Second, you can adjust your W-4. If you go to http://www.irs.gov/individuals/article/ ... 96,00.html you can get a rough estimate of the taxes you will owe and how many allowances you should take. Remember, allowances are *not* the same thing as dependents. The W-4 form itself makes it seem like you can only claim allowances for dependents, but that worksheet is just a simplified way of estimating the number of allowances you need to take to get to the proper withholding number.

Otherwise, you can give the gov't an interest-free loan for a few months and get a fat refund next spring.

Yeah, you would have to claim something close to 35 allowances to bring the tax withheld into the realistic figure (there was a similar post regarding this issue a while back). Seemed like the consensus though was most firms will strongly discourage you from claiming more than ~10, since there is apparently additional paperwork they need to process if you claim above a certain number.

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Big Shrimpin
Posts: 2468
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Re: Paying Taxes for Summer Job

Postby Big Shrimpin » Thu Apr 14, 2011 1:25 pm

This thread is relevant to my interests.

Anybody have further anecdotal examples (I know it will vary by firm due to accounting preferences, but I'm curious and bored, so humor me) about how much after-tax pay is realizable after a NYC biglaw SA? ...And for that matter, after housing/COL expenses, generally? I've been party to/read a few threads about SA taxes, but I don't think any of them yielded experiences discussing as much.

I've been trying to figure out whether and to what extent I should adjust my loan request for 3L. I cringe at the thought of paying the gubmint extra interest, especially if I could expect to take-home somewhere in the neighborhood of $10-12K (after taxes, housing, fun etc...). That extra money, for me, comes out of PLUS loans with a ridic interest rate. Thus, the $10-12K otherwise borrowed will accrue thousands in interest that I'd otherwise save by not taking the loans. HALP? :?

Sup Kid
Posts: 557
Joined: Sat Oct 23, 2010 2:49 pm

Re: Paying Taxes for Summer Job

Postby Sup Kid » Thu Apr 14, 2011 2:10 pm

Big Shrimpin wrote:This thread is relevant to my interests.

Anybody have further anecdotal examples (I know it will vary by firm due to accounting preferences, but I'm curious and bored, so humor me) about how much after-tax pay is realizable after a NYC biglaw SA? ...And for that matter, after housing/COL expenses, generally? I've been party to/read a few threads about SA taxes, but I don't think any of them yielded experiences discussing as much.

I've been trying to figure out whether and to what extent I should adjust my loan request for 3L. I cringe at the thought of paying the gubmint extra interest, especially if I could expect to take-home somewhere in the neighborhood of $10-12K (after taxes, housing, fun etc...). That extra money, for me, comes out of PLUS loans with a ridic interest rate. Thus, the $10-12K otherwise borrowed will accrue thousands in interest that I'd otherwise save by not taking the loans. HALP? :?

According to a couple 3L friends that did a NYC SA last year, they requested and accepted the full amount of loans over the summer, and then at the end of the summer when they knew how much money they had left (and calculated the approximate refund they'd receive in April), they immediately "paid back" what ever loans they didn't need. For one friend she ended up paying 1 month of interest, and for the other he paid it back before any interest accrued. I'll probably try to do something similar, as its hard to know exactly how much you'll spend over the summer, until you actually get there -- knowing your rent/utilities is one thing, but its all the other costs of living in NYC that add up quick.




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