Is it time to talk to my child about…tax returns??

Posted by on February 18th, 2014 in Articles

I’ll admit I’m not a guru of tax laws so as a mother of teenagers, it eludes me on when you know it’s time for your child to file their first tax return. Filing tax returns is arduous enough that most parents hold off on helping their child file a return for as long as humanly possible-but no parent wants their child to go to jail or get audited. Well, most days I don’t want that.

Unfortunately for parents, income tax filing is not taught in schools so the burden is on us. There’s no great video that explains it either like my favorite childhood SchoolHouse Rock video, “Conjunction Junction”. After doing a little research on Investopedia.com, I found some interesting basic guidelines that I thought were worth sharing.

First, let’s define what a “dependent” means to the government before we decide if those dependents need to file. According to the Internal Revenue Service (IRS), children can be claimed as dependents provided they meet ONE of the following:

  • Under age 19 at the end of the year
  • Under age 24 at the end of the year and full-time student
  • Permanently disabled at any age

Also to be claimed as a dependent, you must provide at least 50% of the child’s support and the child must live with the adult at least half of the year. I’m able to check all those boxes so now I can decide if my dependent child with the part-time job needs to file a federal income tax return. For 2014, any ONE of the following requires them to file:

  • The child has unearned income (from investment interest, gains, etc.) above $1,000
  • The child has earned income above $6500
  • Gross income is greater than the larger of $1,000 or earned income (up to $6,200) plus $350
  • Net earnings from self-employment are $400 or more

There are certainly more details than this but this is the basic guideline. More information can be found at IRS Publication 929: Tax Rules for Children and Dependents. Yep, a little light reading.

Aside from not wanting your child to break the law, there are some other reasons for your child to file a tax return. According to investopedia.com, when your child gets a job that pays taxable wages, some employers may automatically withhold part of the pay for income taxes. By filing a W-4 form in advance of the withholding though, children who do not expect to owe any income tax can request that employers not withhold. But in some cases, the employer has already withheld taxes so your child should file a return just to get the taxes back from the IRS. Sure, the return may not be much to you, but to your child that’s extra spending money which is a hot commodity-at least in my house.

Another great reason for your child to file a tax return is the educational aspect. A ridiculously boring concept to them, but something they will appreciate when they are on their own. It won’t take long to help them fill out because it’s a simple, one-page IRS Form 1040EZ. It’s a great opportunity for you to sit and explain the process with your child and help them understand a little better what happens to all their hard-earned money.

As I said, I’m no tax professional so please consult a professional or check with your tax software if you do your own returns. Good luck and happy filing!

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