Will your child be working at a summer job? If so, here are a few items to consider:

  • How to complete Form W-4. When you child begins their summer job and will be paid as a W-2 employee, their new employer will require them to complete a Form W-4, instructing the employer how to withhold income taxes from your child’s paycheck. While completing the form, be aware that IRS will allow a taxpayer to claim an exemption from federal tax withholdings if:
  1. Last year the taxpayer had a right to a refund of all federal income tax withheld because the taxpayer had no tax liability, and
  2. This year the taxpayer expects a refund of all federal income tax withheld because the taxpayer expects to have no tax liability.

Thus, if your child expects a small amount of wage income to be earned this summer and did not owe taxes the prior year, your child can write “Exempt” on line 7 of the Form W-4 and no federal income taxes will be withheld from his or her pay.  With the new tax rules, most likely if your child has no investment income and his or her wages earned will be less than $12,200 for the year, then there will be no federal tax liability for your child for 2019.  (Although there will be no federal income taxes withheld from the paycheck your child will still be subject to social security and Medicare taxes being withheld from his or her paycheck.)   Additionally, if no federal income taxes are withheld, your child’s wages are below $12,200 for the year, and there is no other income received by your child then no federal tax return will be required to be filed by your child.

  • Consider making a Roth IRA contribution. If your child has earned income from a summer job, he or she will be eligible to make a contribution to an IRA under their name, even if no tax return is required to be filed by your child.  The maximum IRA contribution amount will be limited to the lesser of the child’s earned income or $6,000.  In most cases, the income earned by your child will be free from income taxes, assuming total income for your child will be less than the new standard deduction of $12,200; thus, in this situation there would be no tax benefit to contributing to a traditional IRA.  Your child will want to make the IRA contribution into a Roth IRA.  The earnings in the Roth IRA grow tax free over your child’s lifetime.  Additionally, the Roth IRA contribution can be funded by the parents as a gift to the child, but must be funded into an IRA under the child’s name. 
  • E-file your child’s federal income tax return for free. If your child’s employer does withhold income taxes from your child’s pay, your child can easily file a tax return early the following year in order to get the withheld taxes refunded back by accessing the IRS website.  The IRS allows a taxpayer to e-file their tax return for free via the IRS website if the taxpayer’s income is below $66,000.  The IRS link to this free e-filing option is https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free.
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