If your child is starting their first paying job this summer, here are a few tax considerations you are going to want to discuss with your child before they start their summer job.
#1 Dependent Status
The first thing that you need to do is make sure that your child understands that they are still your dependent. As long as the you are still providing for more than half of your child's needs, no matter how much money they make, they are still your dependent. For example, if you are paying for your child's housing, food, and medical costs, and they just use the money they earn as fun money or savings, they are still dependent on you for their needs. That means when they fill out their tax forms, they need to declare that they are a dependent.
Second, you need to make sure that your child has taxes withheld from their paycheck. You may want to help your child figure out what their withholdings should be. Sit down with your child and figure out how much they will most likely make this summer. If you figure out the withholdings correctly, your child will not end up owning taxes when April rolls around next year. If your child will make less than the standard deduction, they don't need to have taxes withheld. However, if they will make more than the standard deduction, you'll want to make sure that an appropriate amount is put towards taxes.
Since your child has a job, they can actually start saving for their retirement. Although it may seem like a little too soon to talk to your child about saving for retirement, the sooner your child starts savings, the more they will have when they retire. The small amount that they contribute towards their retirement right now as a teenager could be worth far more by the time they retire in their 60s. Additionally, if your child puts some of their paycheck into a Roth IRA retirement savings account, that money will come out before taxes and will reduce your child's taxable income.
#4 Filling Taxes
Help your child keep track of what they earn and if at the end of the summer, they have earned more than the standard deduction for someone who is single, make sure that your child knows that they will have to fill out taxes in April. Keep an eye out for their tax forms in January and February, and help them fill out a simpletax return next tax season.Share