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.
Please note that a working child will generally owe no income taxes unless wages earned exceed $6,400 (in 2017) and/or investment income exceeds $350. Needless to say, most of the kids are getting back all the federal and state income taxes withheld during the year.
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.
And here are the instructions on the W-4 for line 7:
I claim exemption from withholding for 2017, 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 on money that didn’t need to be withheld in the first place.
Info to Share with Your Millennial Child
We’ve put together 2 short recorded presentations to help explain these rules to parents and their kids. Visit our MDTAXES YouTube Channel to view:
- W-4 Basics: Kids and College Students Earning Less Than $6,400 Should Claim Exempt (2 minutes) – https://www.youtube.com/watch?v=MRVOs1RcS5c