FILING YOUR CHILD`S 1ST INCOME TAX RETURN
Parents have to make a lot of milestone decisions when their children enter adulthood in order to make their children independent and responsible. But there’s a particular milestone every parent must face – filing the first income tax return under a child’s name.
In reality, the proper way of filing income tax is taught at home. They don’t learn this at school or on television. Children have no idea of the nitty-gritty of filing taxes. So it is the parent’s role to guide their kids through the process.
But first things first: Why do children must file their federal income tax returns? Here are the reasons:
- The Internal Revenue Service (IRS) requires the filing according to the child’s income.
- Such filing can help recuperate taxes withheld by the child’s employer.
- It educates children and creates good financial habits which will continue into adulthood.
Children can be considered dependents as long as they meet at least one of the following prerequisites:
- Under age 19 at the end of the year
- Under age 24 at the end of the year and a full-time student
- Permanently disabled at any age
In order to claim an exemption for a dependent child, he needs to provide at least 50% of the child’s support and the child must live with the adult at least half of the year. Parents, step-parents, foster parents, grandparents, and siblings can make such claim.
There are four basic tests, any of the following requires filing a federal income tax return that must be filed for a given year:
- Unearned income is at least $1,000.
- Earned income is at least $6,550.
- Gross income is higher than the larger of $1,000 or earned income is up to $6,200 plus $350.
- Net earnings from self-employment are at least $400.
Additional rules are applied for children who are blind, owe Medicare and Social Security taxes on tips or wages not reported to or withheld by the employer, or those who receive wages from church exempt from employer Social Security and Medicare taxes.
Some employers have the option to withhold portion of salary for income taxes when children have jobs with taxable wages. By submitting Form W-4 in advance of withholding, children can specify their tax situation, exemptions, status, and the like, as well as state the correct amount of tax to withhold from their paycheck. But in case the employer has already deducted the taxes, a child should file a return to reclaim the taxes from the IRS.
The simplest filing method is using the Form 1040EZ. A child must sign the form and attach a copy of Form W-2 provided by the employer. The IRS will facilitate the refund, even if the amount is small.
Teaching the children about filing income taxes make them understand how the American tax system works and help them establish good filing habits early in life. It can also help them jump-start saving money or earning benefits for the future. In case of self-employment income, children can either start gaining Social Security and Medicare benefits, or open an IRA. They can also submit Form 1040EZ along with Schedule C-EZ to report business profits.
When filing their children’s income taxes, parents need to know the following:
- As per IRS Publication 929, a child, in case he or she cannot file his or her own return for any given reason, the child’s parent or guardian should be the one to file the return on the child’s behalf.
- Children may receive tax deficiency notices and their taxes can be audited.
- If children are otherwise obliged to submit a tax return and their income is comprised of interest, dividends, and capital gains, parents can elect to integrate the child’s salary on their own tax returns.
- Children with net self-employment income above the threshold need to pay self-employment tax for Medicare and Social Security although they owe no tax.
Open communication is a must. Parents, once your child starts working, sit down with them and go through his or her first paycheck. Explain also the two essential information on every income tax form: taxpayer’s name and tax identification number (for children, their Social Security number). Be mindful of the other pointers below:
- Deadline of submitting individual income tax returns is on April 15, but encourage them to file it early.
- Tax returns encompass confidential details. Teach children to file away completed returns and copies in a safe place.
- Make them sign their own forms and explain their signature on the form signifies truthfulness, accuracy, and completeness under perjury. Tell them too what perjury is, which is punishable by law. In other words, instill honesty in filing taxes.
- Emphasize the significance of paying attention to taxes and adherence to IRS regulations.
Steps to Attain Financial Security before Turning 30
Significance of Shaping Kids` Financial Literacy
Favorite Stocks of American Legislators
Qualifications for Financial Planner Aspirants
Flashback Friday: Fallacies Regarding Personal Bankruptcy
Retirement vs. College: What should parents save up for?
POPULAR FOREX DEFINITION
|03:00||ANZ Commodity Prices||Jun|
|03:00||MI Inflation Gauge||Jun|
|03:30||ANZ Jobs Advertisements||Jun|
|10:30||Housing Equity Withdrawal||1 quarter|
|10:30||Sentix Investor Confidence||Jul|
|15:45||Final Services PMI||Jun|