by Andrew D. Schwartz, CPA
I graduated from Wharton in 1987. For those of you keeping score at home, that means I’ve been working at my practice for a score and a quarter. Now that I’ve been practicing for twenty-five years, many of the clients I picked up earlier in my career have children in high school or college who have part-time jobs.
So far this tax season, I’ve noticed that most of these kids who work are incorrectly having federal and state income taxes withheld from their wages. Please note that a working child will generally owe no income taxes unless wages earned exceed $5,950 (in 2012) and/or investment income exceeds $300. Needless to say, most of the kids are getting back all the federal and state income taxes withheld during the year.
The IRS wants to help parents of working children avoid the headaches and costs of preparing tax returns for their kids who won’t earn enough to be taxed. All you need to do is have your child write the word “Exempt” in Box 7 of the Form W-4 that is generally completed the first day of employment. If your child previously submitted an incorrect W-4, please have them file a corrected one with their employer as soon as they can.
Here is what the IRS says in their instructions to the Form W-4:
Exemption from withholding. If you are exempt, complete only lines 1, 2, 3, 4, and 7 and sign the form to validate it. Your exemption for 2012 expires
February 18, 2013. See Pub. 505, Tax Withholding and Estimated Tax.
And here are the instructions on the W-4 for line 7:
I claim exemption from withholding for 2012, and I certify that I meet both of the following conditions for exemption.
- Last year I had a right to a refund of all federal income tax withheld because I had no tax liability, and
- This year I expect a refund of all federal income tax withheld because I expect to have no tax liability.
If you meet both conditions, write “Exempt” here .
Do yourself and your kids a favor by having him or her write the word “Exempt” on Line 7 of the W-4 form. Your working child will have more money to spend sooner (and will hopefully ask you for less of your money during that time) since no federal and state income taxes will be withheld from their wages. And you won’t get stuck preparing a 1040-EZ for your child or paying your CPA $125 or more so your kid can get back their tax refund.
This is very helpful. I now feel comfortable with having my daughter claim exempt on her W-4. Thank you
What if my child claimed exempt not expecting to make more than $5000 but now has received her W-2 and shows that she has made almost $9000. Now what do I have her do? She is 17 and a full time High School Student.
If your child earns more than $5,950 in 2012, she will owe federal taxes at a rate of 10% on the excess. She will also owe state taxes based on the state where she works and lives.
If the money is sitting in a savings account, consider having her take $5k of the money to contribute into a Roth IRA. With a Roth IRA, she can always take back her contributions tax-free.
What happens if they claim exempt at start of the year and then work more than expected and get more than the 5950
If your child earns more than $5950, he or she will owe federal taxes on that income. At that time, your child can file a new W-4 form with the employer, no longer claiming exempt, and instead, claim single with 0 or 1 allowance. Taxes will begin to be withheld from her pay at that time.
What should I do if I am going to turn 18 in a month? Should I still file as exempt (I’ll be going to college in September)? I definitely won’t be making more than $5,950 though
Great question. Your age doesn’t really matter. If you will earn less than $5950 this year, you don’t need to have federal income taxes withheld, since you’ll owe no taxes. One exception would be if you also earn more than $300 in interest, dividends, or capital gains. In that case, you might want to have federal taxes withheld to cover the taxes due your investment income.
Hope this helps.
What should I do if I am going to turn 18 in a month? Should I still file as exempt (I’ll be going to college in September)? I definitely won’t be making more than $5,950 though
I’m a minor and my job won’t give me a w4 form? Is that legal cause I’m a minor, I asked and they said I didn’t need to sign anything I haven’t even given them my social number. Also, I’m paid in cash? Is that alright?
Hi Rachel, that’s not 100% correct. A W4 form doesn’t have anything to do with your age. It’s required for employers to do so they can withhold the correct amount of taxes from an employee’s paycheck. It sounds like they’re paying you as an independent contractor and not as an employee, since they aren’t issuing an actual paycheck. Technically, you will still need to report the cash you receive as income on your tax return. You can thank Al Capone for that (just kidding)!
Okay. Its 2013 now and my son is getting his first job. Has the amount changed for this year 2013? If it has what is it? If he will only make $1,600 to $2,000 can he still claim except? Please answer quickly starts job on Monday. Thank you. Nikki C.
Yes, the threshold is $6.1k for 2013. So he can still file as exempt for his federal taxes on his W-4.
I have a question? my son is 17 years old and is getting a summer job and will not make more than 3,500. If he claims exempt on his w-4 will there be a problem with me claiming him on my tax return?
Thanks for your question. Whether or not your son claims exempt on his W-4 has no bearing on your ability to claim him as your dependent on your tax return. As long as your son meets the age, relationship, residency, and support tests to be a qualifying child — and it sounds like he does — then you can claim him as your dependent.
Hi, I have a question, I claimed exempt on my w-4 when I started my job I got my first pay check and they withheld federal taxes. I told my boss, he said to call the companies accountant. I did and she told me that I can’t claim exempt everybody gets withheld and you can file at tax time. Any advice?
Yes, complete a W-4, and put exempt on the appropriate line. You can download a W-4 form at:
http://www.irs.gov/pub/irs-pdf/fw4.pdf.
And I wrote a short article about this topic for MDTAXES available:
http://www.mdtaxes.com/news0513.html#2
I hope this helps. If not, please post a follow up question.
Hi, I just re-read your question, and don’t think I actually answered what you asked. If your employer refuses to stop withholding federal income taxes from your pay, you’ll just need to file a Form 1040-EZ next winter to get those taxes back While you generally don’t want to give the government your money to hold, it will be nice to get tis tax refund check next winter. You should be able to prepare and file a1040-EZ by yourself. If not, I think TurboTax allows you to file one for free using their software.
This situation is an example where the complexity of the current tax rules doesn’t allow for them to all be followed exactly per the rules.
I’m relieved by the instructions to put “Exempt” because it’s what I told my kids (who are just working minimum-wage jobs for 8 weeks this summer) to do, but I’m confused by the statement on the W4 form that says “Note. If another person can claim you as a dependent on his or her tax return, you cannot claim exemption from withholding if your income exceeds $1,000 and includes more than $350 of unearned income (for example, interest and dividends).” Why would the IRS use the $1000 figure?
Hi Julia. While it’s true that a child that can be claimed as a dependent won’t owe any federal income taxes on the first $6,100 (in 2013) of wages earned during the year, that only applies if the child has less than $350 of investment and other unearned income. A child with total income of more than $1,000 in a calendar year that includes more than $350 of interest, dividends, capital gains, inherited IRA distributions, taxable scholarships, and other unearned income will be taxed on the excess over the $350 threshold (in 2013).
The tax rate on the first $1,000 earned above this threshold is quite low, and after that, the child is most likely subject to the “Kiddie Tax” on this income, and will be taxed at the parent’s marginal tax rate. The Kiddie Tax applies to all kids under the age of 19, and then to kids under the age of 24 who are college students still be supported by their parents.
I hope this brief answer helps.
We are self employed and pay our 9 year old daughter $100 a week for helping with odd jobs around the office and “modeling” in some of our advertisements. For the year our daughter will make less than the $6100 (2013). We plan use this money to fund a Roth IRA. Will the earnings from this Roth IRA investment count towards the $350 threshold? We also have 529 investment earnings for college. Should we keep her in the exempt status?
Hi. By being self-employed, you get to deduct the wages you pay your daughter, and since she is under the age of 18, she’ll owe no Social Security or Medicare taxes on the money she earns.
With respect to the $350 threshold for investment earnings, that only applies to money held in a taxable account. So the earnings in her Roth IRA and in the 529 accounts for which she is a beneficiary don’t count.
So she will need to pay federal and state or should we keep her exempt?
As long as your child has less than $350 of investment income in a taxable account, and earns less than $6,100, you can continue to claim Exempt for federal taxes. Whether the child will owe state taxes depends on the state where you are self-employed and the state of your residency.
Hi, I just got a part-time job and I am 18. On my W-4 form i put i was claiming 0 allowances and I want 0.00 deducted from each pay period. I then put I met the conditions form exemption. Did I do that correctly?
Brianna, I think all you need to do is write the word “Exempt” in Box 7 of the Form W-4. Here is a link to the W-4 form: http://www.irs.gov/pub/irs-pdf/fw4.pdf.
If your high school son claims exempt at his part time job. Does he still need to do a tax return at the end of the year?
If his gross wages are below $6,100 (in 2013) and he has less than $350 of investment income, your son probably won’t need to file a tax return. He will want to file a tax form if he had federal or state taxes withheld to get those taxes refunded.
Hope this answers your question.
My son just started a part time job (he is 17) and we’ve claimed “exempt” on his W-4 for 2013. Since he’ll be working approximately 20 hours at minimum wage next year, it’s likely he’ll exceed the $6,100 threshold in 2014 — first, do you know if the income threshold will increase in 2014 and secondly, should he complete a new W-4 in January claiming -0-? Thanks!
According to the IRS, the maximum a child can work in 2014 and not pay taxes increased by $100 to $6200. If you feel your son will earn more than $6200, you will probably want to have federal taxes withheld throughout the year. Claiming Zero on his W-4 will result in the most taxes being withheld, with less taxes withheld with each additional exemption claimed. As a rule of thumb, an unmarried person who does not itemize their deductions will break even by claiming Single – 1 allowance.
Hope this answers your question.
My son is 6 and is a child actor. He began the year working a few jobs here & there & I didn’t anticipate him making more than the $5,950. Well, he is beginning to get a lot more work & I am worried that he may end up going over that amount. Since he is a child actor, we put most of his money in a Blocked Coogan Trust Account – which can’t be touched until he is 18. Should I not write ‘exempt’ on his next W-4? That way he will pay in on his next check?
Hi, To be honest, I never heard of a Blocked Coogan Trust. I would definitely seek out the expertise of a CPA or Tax Professional who deals with these type issues. A great place to fine a listing CPAs and EAs by specialty is http://www.FindAGoodCPA.com.
Both of my sons filled out their W-4 incorrectly. How do I get a refund on all of the taxes they paid in 2013 (and 2012)? Thank you.
Yes, they will definitely get these taxes refunded. You just need to file federal and state tax returns for each year that they had those taxes withheld as reflected on their W-2s.
My 17 year old son had a short term job where he claimed 0 and made just a little over 2,000.
I still claim him on my taxes but how do I get the taxes he paid back to him? Do I file a seperate tax refund for him?
To get back any federal taxes withheld, you’ll need to file a Form 1040EZ. Just show no taxes due, put down the federal income taxes withheld, and that amount will be refunded.
Please note that Social Security and Medicare taxes withheld won’t be refunded.
Any state taxes withheld can also be refunded too, subject to the rules of the state where you live or work, and as long as a state tax return is filed.
I just turned 18 & I worked multiple jobs in 2012. I was told to put exempt on my w4 when I first started my first job of the year when I received my w2 I made over 6,000$ on one of my jobs alone… All 3 of my jobs I claimed exempt… I am very confused what should I do?
Hi, If you earned more than $6,100, you will owe some taxes with your tax return. Complete a Form 1040-EZ, see by how much your wages exceed the $6,100 threshold, and then look at the tax table to see what the tax liability is on that much taxable income. Please note that the first $8,925 of income over and above the $6,100 threshold is taxed at 10%.
Good luck completing this paperwork.
I have a question I hope you can help with. My daughter is 17, she will be 18 this December. She just started a job last week where she will be working part-time. Her job told her to claim 0. However she also receives social security death benefits because of her fathers death a few years ago.
What is the correct way to handle her W-4 form if she receives this income which is around 10,000 a year. More then likely she will make around 3000 to 5000 this year from her job alone. She will not finish high school till she is 19 due to being in a college/high school program. (if that makes a difference at all, I’m not sure) I still claim her as a dependent because she will live with me full time till she is done with high-school/college.
Thanks so much for your quick reply.
Brooke
I would say that you want to enter that information into a free on-line version of TurboTax or a tax program like that and see what answer you get. That will let you know whether to have federal or state taxes withheld on your daughter’s wages. I’ve never run across an scenario like this yet so can’t say with 100% confidence that she can claim Exempt.
OK thank you.
I will do that later this evening. I do appreciate your time spent in sending me a response.
Brooke
Let us know what you find out!
I asked the question above in regards to my teenager now working and also receiving social security death benefits.
When I filed the paperwork through turbotax it looks as if all of money that is being withheld from her paycheck she would then receive back in a tax return if she were to file one.
When i added in her social security benefits it stated that this was non taxable income for my daughter.
So it looks as though she should be claiming exempt as well. I’m sure she will be happy to redo the paperwork so she can get a bigger paycheck.
I feel sick. Tried to efile and it says because my son filed his own taxes for a very part-time first job and filed NOT exempt, we can’t claim him as a dependent. Now have to mail it all in, explaining the error. What a needless mess. Hope we can still claim him.
Yes, this is definitely a headache for you. Your son will need to file an amended tax return not claiming himself as a dependent. By doing so, you can file a paper return claiming him as a dependent. Definitely a pain in the neck. Probably never even occurred to your son that he had a decision to make about whether to claim himself or not. This is just another example that the current tax rules are way too complicated.
So if I am 19, dependent, and make under 6100, I can claim exempt on my w4?
Yes, that sounds correct Katelyn. If you claim exempt, your employer won’t withhold any federal or state taxes. And if you earn less than $6100, you won’t have to bother filing a tax return to get back taxes withheld.
Thank you so much! I’ve been absolutely panicking about this; mine and my sister’s FAFSA was chosen for “Verification”, and I was terrified that it was because I did something wrong.
My son completed a W-4 at the end of last year (when he started his job) claiming exempt. He has not completed a new one for 2014. First, does he need to complete a new W-4 and second, what if we claim exempt but then it starts to become that he’s going to earn over $6,100 in 2014? Does he need to complete a new W-4 mid-year? Not sure how to handle it if we don’t know the earnings he’s likely to make (he’s 17 and works part time currently but may pick up more hours during the summer months). Thanks for all your help on this!
Hi. To adjust his withholdings, he just needs to file a new W-4 with his employer. Once he does so, they will begin to withhold taxes based on the filing status and number of exemptions reflected on the W-4. In the worst case, he doesn’t file a new W-4, and earns more than $6200 (the 2014 standard deduction). In that case, either he or you will need to pay some federal taxes when he files his 2014 tax return next winter.
Thank you so much! This site is such a great help – really appreciate you taking the time to answer my question.
How can my 17 year old daughter even sign this contract when she is a minor?
Great question. Here is what the IRS says in the instructions about kids signing their returns:
Child’s return:
If your child cannot sign the return, either parent
can sign the child’s name in the space provided. Then, enter
“By (your signature), parent for minor child.”
I didn’t say so above, but thank you for the informative article.
Hi. With all the activity on this one blog post, it seems this is a topic that many parents and children find relevant. Please check out and then share this 5-minute recorded presentation I put together on how a child or student who earns less than $6,300 in wages during the year should correctly complete the W-4 form by claiming Exempt. This video is available at: https://youtu.be/7ywlxeq-9nE.