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.