Question:
My 15-year-old son is starting his first job this summer working in the snack bar at our local pool. What tax forms does he need to fill out?
Answer:
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When he starts his job, his employer will have him fill out an IRS Form W-4 to specify how much money should be withheld from his paycheck for income taxes. “I usually suggest that if he earns less than the requirement to file an income tax return, he should write in “exempt”on the W-4,” says Jeffrey Schneider, an enrolled agent in Port St. Lucie, Fla. To qualify as exempt, he must have had no federal income tax liability last year and anticipates no tax liability this year. In that case, he needs only to complete lines 1, 2, 3, 4 and 7 and sign the form. No income taxes will be withheld from his paycheck (although money will be withheld for Social Security and Medicare taxes).
A dependent child must generally file a tax return if he or she earns more than $6,350 from a job in 2017. Even if your son earns less than that from his job, he may need to file an income-tax return if he has more than $350 in unearned income (such as interest and dividends). See IRS Publication 929 Tax Rules for Children and Dependents for a worksheet and more information.
If he expects to earn more than the threshold over the year, use the IRS’s withholding calculator to figure out how many withholding allowances he can claim. If the calculator shows that he’s eligible to claim one allowance, he can choose either an allowance of “0” or “1” (you can always choose fewer allowances than you qualify for but not more). “More allowances mean that less is withheld, and fewer allowances mean that more is withheld,” says Jackie Perlman, principal tax research analyst at the Tax Institute at H&R Block. “If he prefers to enter ‘0,’ he will have slightly lower take-home pay but will get a bigger refund at the end of the year.”
For more information, see How to Fill Out a W-4 Form and the personal allowances worksheet with Form W-4. Also see IRS Publication 929 Tax Rules for Children and Dependents.
If he ends up having more money withheld than he actually owes in taxes, he should file a Form 1040A or Form 1040EZ in the spring to claim a refund (the IRS helps you determine which form to use). The IRS is holding millions of dollars in unclaimed federal tax refunds for people who didn’t file returns, often because they had part-time or summer jobs and didn’t realize they could file to get back the extra money. You have up to three years after the tax-filing deadline to file for the refund (there’s no penalty for filing a late return if you didn’t owe any money). See Does the IRS Owe You Money? for more information.
No matter how he fills out his W-4, he will still have Social Security and Medicare taxes (FICA) withheld from his paycheck. That money isn’t refundable, but it does count toward his Social Security earnings record, which will be used to determine his benefits in the future.
Because he has income from a job, he can make a move that will enhance his long-term financial situation: Fund a Roth IRA. He can contribute up to the amount he earned for the year, with a $5,500 maximum in 2017. He’s unlikely to want to sock away all of his summer earnings for retirement, but you can help by giving him the money to contribute. Getting into the habit of contributing to a Roth IRA can give him a huge head start on his retirement savings. He can withdraw the contributions without penalty and taxes at any age, and can withdraw the earnings without penalty or taxes after age 59½. For more information about Roths for kids, see Smart Financial Gifts for New Grads.
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