Category Archives: Education Tax Credit

Summer “Tax School” is in Session. Concepts for Parents of Children Getting a Job This Summer

Summer break is here and there are no more classes. The kids still have one more class, Tax Education. Now you can play teacher and educate your children that taxes are deducted from their paychecks.

Here are a few tips.

· Government regulations require employees that start a new job to complete a Form W-4, Employee’s Withholding Allowance Certificate. Employers use the W-4 form to calculate the amount of Federal Tax to deduct from an employee’s salary. Generally, if the child is your dependent and expects to earn less than $3,700 this year there will be no Federal Tax Liability only Social Security should be deducted. To be exempt from having Federal Taxes deducted there are two conditions. First there was no tax due last year and all Federal Tax was refunded. Second this year the child expects a full refund of all federal income tax withheld because they expect to have no tax liability.

· The work may be as a valet, waitress, or a bellhop. Tip income is taxable for Social Security and Federal Taxes.

· Some young people take work doing errands, lawn cutting, babysitting, and etc. The IRS considers this Self Employment. When someone works for themselves, and no taxes are deducted by the employer they are considered the employer and employee for Social Security purposes. The tax term is Self-Employed. This form of income can cause higher than expected tax bills.

· The employment taxes from being self employed start when the net profit is more than $400, which is a very low number. Self-employment taxes are currently 13.3% of profits.

For example your child earns $3,700 doing paper delivery.

End of year Federal Tax – $0 – Self-Employment Tax – $492

Form 1040, Schedule SE, is the form the Self-Employment Tax is calculated on.

There are unique rules for children under 18 who deliver newspapers. Newspaper delivery is automatically considered self-employed by the IRS not considering age; if the following conditions are present:

You are in the business of delivering newspapers.

Compensation is associated to sales different from the number of hours worked.

There is a written contract that has language the worker is not considered an employee for taxes.

Children under 18 that deliver newspapers are generally exempt from Self Employment Taxes.

The preceding information is not intended to replace the services of a professional. Consult a CPA or an Attorney who can better understand your particular circumstances. Please contact us.

South Florida CPA Firm


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Filed under Child Tax Credit, Education Tax Credit, Tax Planning

Credits for Higher Education Tuition

There are two education-related credits: the American Opportunity Tax Credit and the Lifetime Learning credit.

The American Opportunity Tax Credit amount per eligible student is equal to 100 percent of the first $2,000 of eligible expenses and 25 percent of the next $2,000 of eligible expenses paid during the year. The maximum credit is $2,500 per student and can only be claimed for four years by any student. The student must be enrolled in a program that leads to a degree, certificate or other recognized educational credential and is not for any education above post – secondary. The student must take at least one-half of the normal fulltime work load for the student’s course of study for at least one academic period beginning during the tax year and the student must be free of any felony conviction for possessing or distributing a controlled substance.

The Lifetime Learning credit is equal to 20 percent of the amount of qualified tuition expenses paid on the first $10,000 of tuition. The maximum credit is $2,000. The credit is per taxpayer and not per student. Thus, a family’s maximum credit is the same regardless of the number of students in the family.

An eligible student for the credit is a student who is enrolled in one or more courses at a qualified educational institution.

The allowable amount of credit for the Lifetime Learning Credit is reduced for taxpayers who have a modified gross income above certain amounts. For single taxpayers the phase-out of the credit begins when modified AGI reaches $50,000. For joint filers the phase-out range starts at $100,000. The phase-out for The American Opportunity Tax Credit is $80,000 for single taxpayers and $160,000 for joint filers. The American Opportunity Tax Credit and Lifetime Learning Credits are not available to married taxpayers who file separate returns.

CPA Deerfield Beach

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Filed under Education Tax Credit