Posted by Debi G Hill, CPA

Tax Tips For Working Teenagers

Tax Tips For Working Teenagers

Summer work is an initiation ritual for many teenagers. And a lot of teenagers are discovering it the hard way that paying taxes is part of normal life.

When collecting tax return documents, be sure to determine if your teenager owes money to the IRS.

Does Your Teenager Have Taxes?

In general, if a teenager depends on another taxpayer, it is not necessary to file the tax return unless the income obtained (such as interest and dividends) is higher than $950, his or her work income $5,950 or gross income exceeds $950 or earned income (up to $5,650) plus $300.

Check your child's income throughout the year to see if it is less than the amount deducted. In this case, in most cases, your child is not even required to file a tax return.

Choose the Correct Employee Designation

Pay attention to how the employer assesses your child. Some employers love the idea of hiring summer helpers as entrepreneurs, not hiring "regular" W-2s. Employers have fewer documents and tax complications for the employer.

Teens can find this deal interesting because they do not see the suspension of wages. When a teenager is a W-2 employee, payroll taxes and even federal taxes can be deducted from wages. The fact that federal taxes are often returned in the form of refunds is rarely found in adolescents. Being an entrepreneur seems to be the way to go because wages are generally higher.

Unfortunately, being a 1099 entrepreneur may have additional headaches when taxing. A teenager earning more than $400 as an independent contractor must pay taxes alone. Therefore, even if your child does not receive enough to pay federal taxes, you must file a tax return and pay this tax yourself.

Consider the implications of various types of employee classification and remember that what seems like a good idea for a summer job may not be as appealing when you tax.

Special Tax Rules for Teenagers

There are exceptional cases for teenagers who do specific jobs.

Domestic workers under the age of 18 should not be concerned about payroll taxes or self-employment unless they engage in a trade or business of his type. This means that there are exceptions for work involving mowing and guarding. Children under the age of 18 can also benefit from a self-exemption if they deliver newspapers.

It is also of essence to keep in mind that you can hire your child alone in the family business and that you do not have to worry about payroll taxes. But again, you have to be careful. Even in the family business, once the teenager is paid enough to get the standard deduction for presentation, everything changes and deductions become essential.

Adolescents must complete a Form W-4: Once hired, staff members receive forms to complete, such as Form W-4. For a teenager, these methods can be quite intimidating and challenging to understand.

Talk to your child in advance about the forms you fill out. Make sure they know your social security number. You can find a W-4 form online and check it first with your child.

Make sure you understand each section. And you know that you can ask your employer if you have any questions.

Explain that you should not sign legal documents without understanding them. And keep in mind that you do not complete the forms with a guess if you do not know the answer.

Tax on Children

Many parents like to bring awareness to their children the essence of investing. However, the untested income of teens is subject to rules, other than income, compared to adults. If your child's investment income reaches a certain level ($950 in fiscal 2012), he or she must file a tax return and a return.

Above this level, the tax is usually 10%. However, there is another limit ($1,900 for 2012). When this second limit is reached, the investment income not obtained from your child's work is taxed at its marginal rate.

If your child has earned income, he is eligible for an IRA. It may be wise to keep some of your investments in a Roth IRA so that your income will grow tax-free.

Do Not Forget State Taxes

Finally, even if federal taxes cover you, it is essential to note that each state has its own rules and requirements for income tax. Make sure you obey the tax laws in force and make sure your child meets all the requirements.

Debi G Hill, CPA
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