U.S. tax law requires employers to withhold a certain amount of money from an employee’s earnings to be paid to the government.
Most people’s knowledge regarding taxes comes down to two things: Everyone has to pay them, and nobody likes to. However, as Benjamin Franklin famously said, taxes are one of life’s two certainties, making it an important topic for young people to get a grasp on.
While there’s no need for parents to turn their teen into a budding CPA (unless accounting is their passion!), there are some general things teens should be aware of when it comes to taxes.
Getting Hired=Taxes
Finding a new job is exciting, especially for teenagers looking to start earning their own money. It also means getting acquainted with a form all workers have to fill out every time they switch employers: W-4, Employee’s Withholding Allowance Certificate.
U.S. tax law requires employers to withhold a certain amount of money from an employee’s earnings to be paid to the government. Form W-4 is used to determine how much money will be withheld, making it a necessity each time a person starts a new job. Additionally, even if a worker stays with the same employer, it’s a good idea to refill out a W-4 in case their financial situation has changed.
Teens will be asked to provide information on the form regarding dependents, whether they are claimed as a dependent on someone else’s W-4 or if they have dependents of their own. These forms are typically easy for teens to fill out because unless the person is married or has children, they do not need to claim any dependents.
While employers will withhold funds for things such as Social Security and Medicare, it’s possible for employees to be exempt from paying income tax.
Teens can claim exemption from income tax withholding if they:
- Aren’t a dependent
- Had the right to a refund of all income tax withheld the previous year
- Aren’t required to file a return this year
They can also claim exemption if they are a dependent, but had the right to a refund of all income tax withheld the previous year and didn’t make more than $950 during the current year. If they did make more than $950, they can still claim exemption if they have less than $300 in unearned income (such as interest and dividends) and will have less than $5,950 in total income during the year.
Parents should also keep in mind that if a teen is claimed as a dependent on their tax return, the teen can’t claim exemption from withholding if their income exceeds $1,000 and includes more than $350 in unearned income.