Tax issues for kids with summer jobs.
The sound of the lawnmower this summer might be the sound of your child earning money. With this income may come his or her first encounter with the tax collector. To avoid the youngster running afoul of the law, the Institute of Certified Financial Planners, Denver, Colo., suggests brushing up on a few tax rules for children.
* Minors can earn up to $4,000 a year in wages without paying Federal income tax. Above that, they start paying at the lowest tax rate of 15%.
* A child working for an employer can claim an exemption from withholding on the W-4 form if he or she didn't pay income taxes last year and doesn't expect to this year. That saves the youngster from waiting until the next year to get the money back.
* However, if he or she receives even $1 in unearned income during the year--a dollar's worth of savings account interest will do--then withholding is required if wages are more than $650. The child will have to file an income-tax return to get the withholding back. (The size of those withholdings can be minimized by asking the employer to withhold based on a "part-year" basis, which assumes the employee is working less than eight months.)
* A youngster who earns money during the summer on his or her own--such as mowing lawns, taking care of pets, or even providing computer services (kids are smart these days)--doesn't have to file an income tax return as long as earnings are less than $400 and total income (including any from investments) is less than $650.
* While the child is unlikely to pay income taxes, Social Security taxes of at least 7.65% are likely. That's money he or she won't get back from withholding.
* Kids who make more than $400 through self-employment must...
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