Teen Child - First Job - Tax?

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ddurrett896
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Teen Child - First Job - Tax?

Post by ddurrett896 »

Have a child that is under 18 and working a summer job with income for the year around $8-$9K. Employer asked if the child wants to withhold federal tax - should I have yes?

Also, what happens at tax time? We will claim child as dependent, does child need to submit their own tax return? Thanks
livesoft
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Re: Teen Child - First Job - Tax?

Post by livesoft »

Say No, but have your teen child research this. Yes, is also OK. Good lessons will be learned either way.

At tax time, your child fills out their own Form 1040 and you do as well. Then you check the Kiddie Tax rules and decide what to do. Tax prep software is helpful with this.
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miamivice
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Re: Teen Child - First Job - Tax?

Post by miamivice »

The child should fill out the W-4 and the employer should withhold income tax. It won't be a lot of money, but it will likely be a eye opener to your child when the first paycheck is less than expected. :happy

Not withholding taxes would set a bad precedent for the child.

When I was a kid many years ago, my dad filed income tax on my behalf. I assume that would make sense for your kid today.
Jags4186
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Re: Teen Child - First Job - Tax?

Post by Jags4186 »

According to TurboTax:

A minor who earns less than $12,950 will not owe taxes but may choose to file a return to receive a refund of withheld earnings. A child who earns $1,150 or more (tax year 2022) in "unearned income,” such as dividends or interest, needs to file a tax return.

and

Earned income

A minor who may be claimed as a dependent has to file a return once their income exceeds their standard deduction. For tax year 2022 this is the greater of $1,150 or the amount of earned income plus $400 up to the full standard deduction of $12,950.

As an example, a 15-year-old who works after school and earns less than $12,950 would owe nothing in taxes. Even so, if an employer withheld taxes from her paycheck, she'll have to file a tax return to obtain a refund.


So, decline withholding and there is no need to file a tax return for $8-9k in earnings.
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FiveK
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Re: Teen Child - First Job - Tax?

Post by FiveK »

No need to withhold federal tax. The child may legitimately check the W-4 box for "exempt from withholding". See the W-4 instructions for more on that.

Is there state or local tax to consider?

If almost all the income is W-2 wages (as opposed to 1099-NEC and/or taxable investment income), then there is no need to file a federal return.

Have you considered whether to encourage the child to contribute to a Roth IRA (it would have to be a "custodial Roth IRA" but any of Fidelity, Schwab, or Vanguard would do that)?
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teen persuasion
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Re: Teen Child - First Job - Tax?

Post by teen persuasion »

Walking your teen thru filing taxes is a great learning opportunity. I walked my DS2 thru his when he was 15. We learned that you can't efile a first return for someone under 16, have to paper file. Fortunately he turned 16 in a week - we waited until he was officially 16 and resubmitted without issue.
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arcticpineapplecorp.
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Re: Teen Child - First Job - Tax?

Post by arcticpineapplecorp. »

when I was 16 my dad had me put like 4 allowances on my w-4 to make sure i had no tax withheld. His philosophy was about not giving the government an interest free loan. He also thought I probably wouldn't make enough to owe. He was wrong and when he helped me do my tax return and saw I was going to owe a couple hundred bucks he asked me if I wanted to learn a legal trick to eliminate those taxes (for now). He explained to me about what an IRA was (traditional, there wasn't even a Roth IRA back then and it wouldn't have helped reduce income in this example anyway) and showed me on the tax form how much I'd need to contribute to reduce my income to the amount where $0 Federal tax was owed. My dad explained what I'd do next. I went to the bank myself (back then you couldn't open a vanguard account for less than $1000) and set up an IRA CD. The tellers were about to fall out of their chair when I said I wanted to open an IRA and I was only 16.

There were many good lessons learned here. There were others lessons too later on like how much more i could have made had that money been invested rather than in a CD at the bank, and so on. I continued to learn and now do taxes on a volunteer basis through the IRS's V.I.T.A. program. Hopefully your child will want to learn things that will benefit him/her for life.
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cchrissyy
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Re: Teen Child - First Job - Tax?

Post by cchrissyy »

once my teens got jobs, taxes were withheld and every year i would file their returns to get the money back. it served as an excellent teaching opportunity, sitting together going over all the steps of their taxes and explaining how it works and what they might need to know for the future. plus it documented how much i would put in their roth iras.
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mhc
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Re: Teen Child - First Job - Tax?

Post by mhc »

FiveK wrote: Mon Jun 05, 2023 8:23 pm then there is no need to file a federal return.
Depends on the state. In Colorado, one may only get certain tax credits or money back from the state if a state return is filed. To use the free Turbo Tax for state returns, one must first file the federal return. I went through this with my son for 2022. He owed no taxes for federal or state, but by filing, he received money from the state.
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DarthSage
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Re: Teen Child - First Job - Tax?

Post by DarthSage »

If you can afford it, give consideration to doing a "parental match", and putting money in a Roth (up to the limit, which he's over).

For our two girls--one is launched (and has her own 403b). The other works at Starbucks, which has excellent benefits. She invests 10% of her income in a Roth 401k, and gets a 5% company match in a regular 401k. She's not a big money person, but she sure gets "free"!

Our older son doesn't get a company match, but he pays us "rent"--$100/wk, that we put in a Roth for him. He's autistic, it's a different metric.

We invested in a Roth for our youngest, DS17, up to his earnings.

We figure, comparatively small amounts for us, fairly painless for them, decades of compounding and growth.
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ddurrett896
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Re: Teen Child - First Job - Tax?

Post by ddurrett896 »

FiveK wrote: Mon Jun 05, 2023 8:23 pm Have you considered whether to encourage the child to contribute to a Roth IRA (it would have to be a "custodial Roth IRA" but any of Fidelity, Schwab, or Vanguard would do that)?
Didn't even think about the Roth IRA now that income is earned. Thanks for the heads up!
kabob
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Re: Teen Child - First Job - Tax?

Post by kabob »

First job - Tax? Yes! Absolutely, It sets up a great startup for Life...

For my first job as a PaperBoy for the Albany Times Union, they "Required" I get a SSN and even had the application for it along with the app for the job...
That worked well for me, twas a good start, was in the system, had my own money & learned a little personal money mgmt also...
Was a good start & intro for our Capitalistic system...

and +1 for that parental assistance for Roth startup ASAP!
There's not much better than a GOOD STARTUP for life...
Glockenspiel
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Re: Teen Child - First Job - Tax?

Post by Glockenspiel »

They won't owe any tax because their income falls below the standard deduction, but you could have them withhold tax so that they can file the form to learn.

I'd also have them max out their Roth IRA (if possible) since they have earned income.
Admiral
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Re: Teen Child - First Job - Tax?

Post by Admiral »

Both my kids (20 and 16) have jobs and both are having tax withheld. They will get it back come April since it's below the limit, but in the meantime I find it helpful for them to see the difference between gross and net, especially since they can easily compute their hourly rate x hours worked and see what they are actually clearing.

There is also state and city tax where we live...
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FrugalProfessor
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Re: Teen Child - First Job - Tax?

Post by FrugalProfessor »

My oldest started working as a "detassler" in the corn fields at 13. What a great experience (the job was pure misery, but she enjoyed it).

FICA taxes are withheld regardless of what your federal withholdings are, meaning for every $100 gross, they net $100-$6.2-$1.45=$92.35. She contributes 100% of her net (the $92.35) and I "match" the $7.65 to get her to a $100 Roth contribution per $100 gross. She is 16 now and well on her way to a 5-digit Roth balance.

I plan on doing this for all of my children.
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FiveK
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Re: Teen Child - First Job - Tax?

Post by FiveK »

Many lessons for the newly employed to learn. Also consider teaching them about estimating their federal and state tax liabilities for the current year, then withholding only enough to reach one of the Safe harbors.

This avoids giving the IRS an interest-free loan, and instead earns interest on whatever amount would have been withheld by default. Probably not significant in absolute dollars for summer workers, but learning to think strategically has value.
DarthSage
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Re: Teen Child - First Job - Tax?

Post by DarthSage »

There are many lessons with that first job--a taste of financial freedom, picking up some skills, and learning about taxes. I love that first paycheck--"Who is FICA, and why are they taking my money?" Ahh, welcome to adulthood, Sweetie!
Glockenspiel
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Re: Teen Child - First Job - Tax?

Post by Glockenspiel »

FrugalProfessor wrote: Tue Jun 06, 2023 11:47 am My oldest started working as a "detassler" in the corn fields at 13. What a great experience (the job was pure misery, but she enjoyed it).

FICA taxes are withheld regardless of what your federal withholdings are, meaning for every $100 gross, they net $100-$6.2-$1.45=$92.35. She contributes 100% of her net (the $92.35) and I "match" the $7.65 to get her to a $100 Roth contribution per $100 gross. She is 16 now and well on her way to a 5-digit Roth balance.

I plan on doing this for all of my children.
That's amazing! Congratulations. Corn detassling, spraying beans, picking rocks, and a paper route were some of my very first jobs. Not great jobs by any means, but taught me a lot about hard work and to value every dollar I earned. I hope to do the same with my kids (Age 7 and 4) and open Roth IRAs for them as soon as they start earning some of their own money.
Asyouwish
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Re: Teen Child - First Job - Tax?

Post by Asyouwish »

The W-4 was redesigned a few years ago. And the withholding tables were adjusted due to the TCJA and the big changes made back then. If the W-4 is set to single and the income is below the standard deduction, the employer might not even take federal withholding. Make sure they get a paystub and understand how to read it. Also teach them to save important tax documents for three years at a minimum. Including a copy of their 1040. Preferably longer than three years. The amount of people who don’t save important tax documents is surprising.
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