Filing taxes can be a confusing and stressful experience for adults, let alone for student workers doing their taxes for the first time. However, with more than 19.5 million students [http://www.bls.gov/news.release/pdf/youth.pdf] employed during the summer months, many children will spend March and April navigating the tax season with their parents.
While all students who work must file their own taxes, there may also be implications for their parents. The following tax tips can help student workers and their parents better understand what to expect this tax season.
- When to file: Individuals - or in this case, students - are required to file taxes once they earn $400 in self-employed income. This can include babysitting, lawn mowing, and other jobs where they schedule and work themselves. If your child works for a company during the summer or the school year, they only need to file taxes once their income exceeds $5,950.
- Withheld taxes: If your child’s job withheld taxes from their earnings, they will want to file their taxes - even if they do not meet the minimum threshold. This is the only way to receive the withheld income back from the IRS.
- Rules for claiming working dependents: Parents are still allowed to claim working dependents on their tax returns regardless of what the child earns. However, this is only true as long as the child does not provide more than half their own support, such as food, shelter, clothing, or entertainment. Individuals who are claimed as a dependent on a parent or guardian’s taxes cannot claim their own exemption.
- Child tax credit: Children under the age of 17 - even if they are working - are still eligible to be claimed as dependents for the child tax credit. This credit is worth up to $1,000 per eligible dependent for parents and guardians.
- Filling out the W-4: Whether they work part time, over the summer, or throughout the year, students should fill out a W-4 tax form after they are hired. To maximize their earnings without having to pay more during tax season, it is recommended to claim zero exemptions.
- Working for a family business: Many students work for or help out with family businesses. If the business is unincorporated, children are not subject to payroll taxes when employed by a parent. This benefits both parents and children as neither are required to pay the FICA taxes. Likewise, as paying a child wages reduces the net income of the business, employing a child can also help reduce the self-employment tax parents pay.
Helping a child file their taxes for the first time is a great way to help them create a successful financial future.