Is your kid planning to work this summer? If so, make sure you know the tax basics.
Hello, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.
Here are four things you need to consider if your kid decides to get a summer job:
Tax returns. Assuming no other sources of income, your child can earn up to $6,300 in 2016 before a tax return has to be filed. However, if income tax is withheld from paychecks, your kid will have to file a return to claim a refund.
Federal income tax withholding. When hired, your child will have to fill out Form W-4, Employee’s Withholding Allowance Certificate. This form tells the employer how much federal income tax to withhold. If the job involves tips, remember that tips are taxable income. Have your child maintain records of amounts received.
Financial aid. Summer earnings can affect eligibility for college financial aid. If you’re counting on financial aid, check out the earnings limit ahead of time.
Retirement saving. Consider encouraging your child to open a Roth IRA. Amounts invested in a Roth can grow tremendously due to tax-free compounding over many years. As an incentive, you might match any amounts your child is willing to save.
To recap, consider these tax basics when you kid gets a summer job.
Until then, this is Noel Dalmacio, your ultimate CPA at lowermytaxnow.