taxes

What Kids With Summer Jobs Need to Know About Taxes

Even teens who won’t make enough money to owe federal taxes need to file a withholding form with their employer.

My son is in high school and will start his first summer job in a few weeks. What does he need to do about taxes?

First, he will need to fill out an IRS Form W-4 to specify how much money will be withheld from his paychecks for income taxes. “Most teenagers working their first summer job won’t earn enough money to end up owing any federal income tax at the end of the year,” says Dan Thomas, a CPA and personal financial specialist in Orange County, Calif.

Generally, anyone with earned income of less than $6,300 in 2015 does not need to file a tax return. If he will earn less than that, your son could check the box on Form W-4 that allows him to claim he is exempt from withholding. Note, however, that a child who is claimed as a dependent by someone else cannot claim an exemption from withholding if he has more than $350 of unearned income (from interest and dividends, for example) and his total income is more than $1,050.

Thomas often recommends that teens claim zero or one withholding allowance instead, in case they end up having enough earned income to owe some tax. “That minimizes the sticker shock of having a significant balance due,” he says. If your son has more money withheld than he owes in taxes, he’ll get a refund when he files Form 1040 next spring. For more information, see IRS Publication 929 Tax Rules for Children and Dependents. Also see How to Fill Out a W-4 Form and IRS Form W-4 for instructions.

No matter how your son fills out the W-4, he’ll still have Social Security and Medicare taxes withheld from his paychecks, and that money won’t be refunded even if he files a return. But it counts toward his Social Security earnings record, which is used to determine his benefits in the future. “If you look at your own Social Security statement, it will include wages all the way back to that first job in high school,” says Kelley Long, a member of the National CPA Financial Literacy Commission. Your son will also have to specify how much to withhold in state taxes.

Kids with summer jobs should also consider contributing to a Roth IRA; you just need earned income from a job to be eligible to contribute to a Roth, regardless of your age. “If parents want to really supercharge the saving and investing aspect of the summer job, they can push their children to establish a Roth IRA,” says Thomas. Your son doesn’t have to use his own money; you can give him the money to contribute. He can contribute up to the amount of money he earned for the year, with a maximum of $5,500.

Starting a Roth when he’s young can give your son a huge head start for the future. He can withdraw the contributions tax-free and penalty-free at any age, and he can withdraw the earnings tax-free after age 59½. “I have done this with my own children for the past few years, and they have become passionate savers and investors,” Thomas says. For more information about Roths for kids, and some administrators that make it easy for minors to open Roths, see Give the Gift of a Roth IRA.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 25 Cheapest U.S. Cities to Live In
places to live

The 25 Cheapest U.S. Cities to Live In

Take a look at our list of American cities with the lowest costs of living. Is one of the cheapest cities in the U.S. right for you?
October 13, 2021
Gen X: How to Make Sure Your Future Self Remains Funded
personal finance

Gen X: How to Make Sure Your Future Self Remains Funded

If you’re a Gen Xer, like me, now might be the right time to talk to a financial professional to learn more about how to adjust your retirement planni…
October 20, 2021

Recommended

How and When to Opt-Out of Monthly Child Tax Credit Payments
Tax Breaks

How and When to Opt-Out of Monthly Child Tax Credit Payments

If you want to stop advance payments of the 2021 child tax credit, you can opt-out using the IRS's online portal before the monthly deadline.
October 27, 2021
Child Tax Credit Payment Schedule for the Rest of 2021
Tax Breaks

Child Tax Credit Payment Schedule for the Rest of 2021

The IRS has already sent four batches of monthly child tax credit payments. Here's when you can expect the remaining payments.
October 27, 2021
Next Child Tax Credit Payment Opt-Out Deadline is November 1
Tax Breaks

Next Child Tax Credit Payment Opt-Out Deadline is November 1

The due date for opting out of the November 15 monthly child credit payments is right around the corner. Why some people don't want to miss that deadl…
October 27, 2021
How Snowbirds Can Be Taxed as Florida Residents
retirement

How Snowbirds Can Be Taxed as Florida Residents

If you live in a high-tax state during the summer but winter in Florida, you can save big bucks by establishing residency in the Sunshine State.
October 25, 2021