My 17-year-old son worked as a lifeguard this summer at our local swimming pool. Does he need to file a tax return next April?
It depends on how much he earned on the job and how much he earns from any other investments in 2009.
Kids who are claimed as dependents on their parents' returns must file a tax return if they earn more than $5,700 from a job in 2009. If your son earned less than that, he still may be required to file a return if he earns more than $300 for the year from any investments in his name, such as from a bank account, mutual fund or custodial account. (Dependent children who don’t have jobs have to file if their investment income is more than $950 in 2009.) For more information about the tax-filing rules for children, as well as details about which forms to submit, see IRS Publication 929, Tax Rules for Children and Dependents.
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Even if your son isn't required to file a tax return, he might want to do so anyway to get back any income taxes that his employer withheld. He won't be able to get back any wages that were withheld for Social Security taxes, but the work he did counts toward his future Social Security eligibility.
And because he had a job, he can take advantage of a valuable tool to help him save for the future. Because your son has earned income -- regardless of whether he has to file a tax return -- he can open a Roth IRA, which can give him a huge head start on retirement savings. The maximum IRA investment in 2009 is $5,000 for anyone younger than 50 (it's $6,000 for people who are 50 or older), but he can't contribute more to the IRA than the amount of money he earned from a job during the year. If he earned $4,000 over the summer, for example, he can invest up to $4,000 in a Roth IRA.
Few kids want to invest all their summer earnings in an account they won't tap for years, but you can give him the money to make the contribution or offer to match his contributions dollar for dollar (as long as the total contributions to his account for 2009 don't exceed the amount of money he earned for the year or $5,000, whichever is lower).
And the money can grow substantially over the years: If the investments earn 6% per year (a conservative average over the long run), just that one $4,000 investment could grow to more than $73,000 by the time today's 17-year-old reaches age 67. He can withdraw the contributions tax- and penalty-free at any time, and he can take the earnings tax-free after age 59½. If he gets started in the saving habit and invests $4,000 every year until retirement, then he could amass an account worth about $1.3 million by the time he's 67, assuming 6% annual returns.
See Roth Rules for Kids and Why You Need a Roth IRA for more information.
-
IRS Announces Florida Tax Relief Following Hurricane IdaliaTax Deadline In response to the severe damage caused by Hurricane Idalia, the IRS has extended tax deadlines for affected Floridians.
-
Warning: Watch Out for New IRS Refund Mail ScamTax Scams If you receive a cardboard envelope appearing to be from the IRS about an unclaimed tax refund, be cautious. It’s a new scam.
-
Your Frequently Asked Tax Questions Answered: Kiplinger Tax LetterKiplinger Tax Letter The Kiplinger Tax Letter receives a lot of reader tax questions and its editor, Joy Taylor answers a selection of them.
-
Supreme Court: Yes, the IRS Can Secretly Obtain Your Bank RecordsThe Supreme Court has sided with the IRS in a case that involves owing the IRS money, taxpayer privacy, and notice.
-
IRS Processing Improvements Could Bring Faster Tax RefundsIRS An IRS paperless processing initiative and other service and technology improvements mean taxpayers could see faster tax refunds next year and beyond.
-
Supreme Court to Decide if IRS Can Secretly Obtain Bank Records
Among other high-profile issues, the Supreme Court is considering a case involving taxpayer privacy and the IRS.
-
IRS Says File By July 17 for $1.5 Billion in Unclaimed Tax RefundsUnclaimed tax refunds from 2019 are waiting for millions of people who might not know it – but only if they file the pandemic-era tax return soon. Are you one of them?
-
IRS $80 Billion Plan Targets Taxpayer Compliance, Improved ServiceThe IRS unveiled its much-anticipated strategic operating plan detailing how the agency will spend $80 billion in funding allocated over 10 years under the Inflation Reduction Act.
