By David Compton / guest columnist
June 09, 2007 11:17 pm
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If your child takes a job this summer, you’ll want to know about the following tax issues.
For 2007, your child can earn as much as $5,350 and not pay a dime in federal income taxes. If your child’s earnings won’t exceed this amount, consider having the child claim “student — exempt” when completing the federal withholding allowance certificate (Form W-4). If this is the child’s only income and the total is below the $5,350 limit, he or she then won’t have to file a 2007 tax return. If the child makes a maximum deductible traditional IRA contribution for 2007 ($4,000), he or she can earn as much as $9,350 without incurring any federal income tax.
Don’t overlook the fact that there will still be withholding from your child’s paycheck in the form of social security and Medicare tax. But those payments are not income taxes, and they cannot be refunded to the child. Realize also that as long as you provide more than half of your child’s support, you can continue to claim the child as an exemption on your tax return. Your child will lose his or her exemption, but that exemption deduction is typically more valuable to you than to your child.
If you own your own business, consider hiring your child for summer employment. Your business can deduct the wages you pay the child, as long as the wages are appropriate for the work performed. If your business is a sole proprietorship or family partnership, you are not required to withhold social security or Medicare taxes on your child’s wages if he or she is under 18 years of age.
Don’t overlook the benefits and opportunities for both you and your children when helping them to plan for taxes and their summer jobs.
David Compton is a Certified Public Accountant with offices in Meridian and Birmingham, Ala.
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