Often teens take a part-time job but aren’t always aware of the tax rules that apply. Here are a few things your child should understand:
Income tax withholdings will be deducted from their pay based on their income and how they completed their W-4 form.
Payroll taxes will be withheld including social security, medicare, and other state taxes.
A teenager who started a business may have to pay estimated tax in quarterly installments. The return must be filed with Schedule C (Form 1040) to claim expenses incurred for the business.
Tips totaling more than $20 in a month must be reported to the employer to be taxed on the employee’s paycheck. All tips collected throughout the year must be filed on an individual’s tax return.
If your child is a newspaper carrier and certain conditions are met, he/she may qualify as a self-employed taxpayer or otherwise be exempt from payroll taxes.
If your child an ROTC (Reserve Officers Training Corps) cadet, payments for participating in summer training or active duty is taxable. However, a subsistence allowance while in advance training is not taxable.
If your child working part-time, taxes may be withheld even if no tax liability exists. To avoid this, claim “exempt” on line 7 of the W-4 form. This tax break is available only if your child is claimed as your dependent, has not had tax liability in previous years, and will not earn more than $6,300 throughout the year. If your child earns more than $6,300, they should file a new W-4 form and update their status.
The IRS has an e-filing program called IRS Free File which is only available on the IRS website. Even if your child did not earn enough money to be required to file a federal tax return, you must file a tax return to get a tax refund if income tax was withheld. More information on the tax rules for students with summer jobs can be found here.
For tax preparation assistance, contact your CPA.
