So, your teen had an amazing summer job and earned some nice spending money plus was able to add to their savings account. Sweet. However, it?s that time of year?time to pay Uncle Sam.
On your teen?s pay stub, they most likely saw the following taxes taken out of their hard-earned pay (welcome to the adult world!):
????????? Federal Tax withholding
????????? State Tax withholding
????????? Medicare
????????? Social Security
????????? Disability (SUI, SDI, FLI)
By the end of Jan, your teen should receive a W-2 from their summer employer and a 1099-INT from their bank for interest earned on their savings account. Explain to them each form and show them how to keep their records organized and ready to use for filing their taxes as needed.
NOTE: If you have other savings or brokerage accounts for your teen (i.e. money you put aside for college, etc) then you will get 1099s on those accounts too. Reminder: Custodial accounts are for the benefit of a minor child and managed by a parent or another designated custodian. For example, in New Jersey, custodial accounts are established under New Jersey?s Uniform Transfer to Minors Act (UTMA) and the custodian controls the account until the child reaches the ?age of majority? or age 21 in NJ. This means that the account reverts to your child as sole owner and they can do whatever they want with the money in the account. (All the more reason to teach good money skills at a young age!!)
OK, back to the tax forms. What should your teen do about filing taxes?
The answer is?it really does depend on your individual situation. With that said, here is some general information that you should be aware of so you can ask your financial advisors the right questions:
????????? If your teen has W-2 income and taxes were withheld yet their income is such that they didn?t have to pay the taxes, then the only way to get the tax withholding?back is to file a tax return.????????? Your teen?s income is taxed at their own income tax rate (which is most likely lower than your tax rate).
????????? Your teen?s investment income is governed by a dual-tax structure for investment accounts (CDs, savings, brokerage). The first $950 of interest, dividends or capital gains is tax-free. The next $950 is taxed at your teen?s tax rate. Anything over $1,900 is then taxed at the parent?s top marginal tax rate rather than the 15% capital gains rate.
????????? In some cases, it may be better for you to file your teen?s investment income on your tax return and, in other cases, your teen may pay less taxes if they file separately. There are two forms to review (Form 8615 & Form 8814) that can help you and your tax preparer decide which way to file to make sure that you are paying the lowest possible tax on your teen?s investment income.
????????? Taxes get more complicated (as if that?s even possible!) for parents who are separated, unmarried, treated as unmarried for tax-filing purposes or remarried. Definitely see your financial advisor and ask lots of questions!
????????? IRA Publications for your reference:
You should confirm all the above information with your tax preparer and financial advisors ? they are your best resource.??
Unfortunately, taxes are here to stay and are not getting any easier to understand. Use this opportunity to teach your teens to search out resources, ask the right questions and get professional financial help when you need it. Disclaimer ? Everyone?s tax situation is different! This information should be used for your own reading and not for professional advice. Please consult your own financial advisors before making any financial decisions.Source: http://financialcoachkids.blogspot.com/2012/02/teen-taxes-questions-to-ask.html
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