How to Help Your Teen File Taxes
Our high schools here in the US teach math skills in courses ranging from basic algebra through to abstract calculus. Nonetheless, the vast majority of schools neglect to teach a crucial math-related life skill – how to file taxes. The task of educating young adult workers therefore falls to parents.
This guide explains why, when and how to help your teenager or young adult file their taxes.
Why & When Your Child Should File Taxes
Teenagers and young adults will need to file a federal tax return for three reasons:
1. If your child has work related income, it must be reported to the IRS by law.
2. If young workers don’t file for taxes, they won’t get taxes withheld by employers. This could mean missing out on refunds from the IRS.
3. Learning to file taxes helps teens and young adults acquire crucial knowledge and develop good financial habits.
Each of these areas will now be discussed in more detail.
Filing Taxes is Required by Law
Even children can be audited! A young person’s income tax needs to be filed as mandatory. Here are the four basic situations in which a dependent child must file a federal income tax return:
1. He or she has unearned income (e.g. bank account interest or stock dividends) above $950.
2. He or she has earned more than $5 800.
3. The child’s gross income exceeds $300 plus $950, or $300 plus earned income (up to $5800) – whichever is greater.
4. If self-employed, his or her net earnings are $400 or more.
For example, if your child has earned $38.10 in savings account interest, $4 200 from a job at the library and $220 from selling homemade earrings, then she probably doesn’t need to file taxes. On the other hand, a teen that made $550 with their own snow shoveling business would need to fill out a Schedule C for self-employment income.
Additional criteria apply for children who are blind, who owe taxes on tips not withheld by employers, and those who are paid by tax-exempt religious organizations. For more information, consult with a professional tax advisor or see the IRS’s Publication 929, titled ‘Tax Rules for Children and Dependents’.
Filing Brings Tax Refunds
If your child’s employer has withheld income taxes, then your child should file a federal income tax return to get a refund. You can help them complete form 1040EZ, which as most taxpayers know is a simple one-page IRS form.
To avoid having their taxes withheld in the future, your child can have their employer stop automatically withholding income taxes by filing Form IRS W-4.
Filing Taxes is Educational
You can instill sound financial habits for a sound future by helping your child file their taxes. They’ll not only learn to accomplish an important practical task, it will also get them thinking about finances, taxes and politics.
How to Help Your Teen File Taxes
Here are some topics to discuss with your child when he or she begins working and is thus required to files taxes:
· Explain the legal importance of paying taxes.
· Review their pay stub. Make sure they understand their gross earnings and various deductions. Explain how their income tax deduction won’t include FICA deductions. You can also explain a bit about Social Security and Medicare. For example, filing taxes gives them the opportunity to start accumulating Social Security work credits.
· Point out that filing before the mid-April tax deadline is a good idea. It lets them avoid the stress of last-minute work and makes tax returns arrive back earlier. Share some of the consequences for not filing, such as a $25,000 fine and jail time for tax evasion.
· Make sure that your child uses their legal name, not a nickname, and learns their Social Security number while filling out the tax return.
· When your child signs the tax form, ensure they read the small print about their signature attesting to the form’s truth and accuracy. Make sure they understand the penalty of perjury.
Claiming Your Child as a Dependent
You can claim your child as a dependent even if they file taxes. Provided that you meet child support and custody requirements, you can claim children as dependents if they fit one or more of the following criteria:
1. They were under age 19 at the end of the year.
2. They were under age 24 at the end of the year and a full-time student.
3. They are permanently disabled (any age).
Conclusion
Unfortunately, no-one teaches us in school how to file taxes, so even adults struggle with knowing what to do, let alone children. Help your teen or young adult comply with the law, receive a tax refund and acquire important skills for managing their finances. If you yourself are struggling to explain tax basics to your child, you can make things easier with free online tax software as well as further advice from the IRS website.
About the Author:Bob Goren is an accountant and independent advisor helping people to file taxes in the US.
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