School is out for the summer, or will be shortly, and for many high school and college students, that means the start of a summer job. The U.S. Bureau of Labor Statistics reported that 19.5 million youths between the ages of 16 and 24 were employed last July, and we can expect close to the same number on payroll this year. While summer jobs and earnings have expected tax implications for the summer worker, much to the surprise of the parent, there can be an impact on their tax return too.
Besides having some extra cash in their pocket, summer jobs are a great opportunity for young Americans to learn about income taxes and tax return responsibilities. As a parent and a tax professional, I know firsthand the importance of preparing children for financial responsibilities, and now is a great time to start that conversation -- especially for a first job or reoccurring summer employment.
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Additionally, dependent student income from a summer job, or any job, can have implications on the parent's tax return in ways that range from one more return for the family tax preparer to lost benefits such as the possible loss of an exemption and other tax deductions and credits. Having a new working member in the family is always a great thing, but there are potential implications taxpayers need to know about to avoid any surprises next tax season.
Here are 10 things every taxpayer needs to know about a first-time job or any change to the earning structure in a family:
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- When to start filing a tax return: If an individual, in this case your child, has as little as $400 in self-employment income, they may be required to file an income tax return. If the individual works for someone else, they are required to file once they have more than $5,950 in income.
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It can be difficult to think about how your child's summer job can affect your tax return the following year, but understanding the tax implications now can help young taxpayers make smart decisions to lower their tax expenses and possibly increase next year's income tax refund for the both of you.
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Those who tend to get the largest tax refunds are those who plan their tax strategy throughout the year, not just at tax time. Finally, as was said, remind your child to start a lifetime good habit and file their tax returns on time and make sure they are protective of their identity. Taxes are complex and they can be even more so when you have a working dependent, so get some help early on understanding which possible implications may affect you.
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