Taxes represent a great portion of every American’s financial life, yet it’s rarely taught in our schools. This lack of formal education often leaves us crossing our fingers when filing tax returns, hoping that we filled out each section correctly and claimed the right amount of deductions.
I have provided tax workshops several times at the local high school to teach kids—and despite the complexity of the actual tax code, it’s not a difficult subject and the kids catch on right away. Hey, when it affects our pocketbooks, the learning curve goes down a bit.
The first thing young taxpayers should know is how to fill out IRS Form W4. When you accept a position with an employer this will be one of the first documents completed. If you will be working part time over the summer and not making much money and your parents can claim you as a dependent, then you can simply complete the form with your name, Social Security number and address then write in the word ‘exempt’ on line 7. This will stop your employer from deducting federal and state income taxes. If you have other sources of income or will be earning more than the filing requirement, you should check with a tax professional before completing IRS Form W4.
When you receive your first paycheck, look at the paystub to see what taxes were withheld. If you completed Form W4 indicating exempt, there should not be entries in the boxes for federal and state income tax withholding. Not withholding these taxes increases your take home pay.
If you work in the family business and are under the age of 18, you will not be required to pay in to Social Security and Medicare either. But if you work outside the family business then you can expect to see 7.65% of your gross pay withheld to fund these accounts.
By Jan. 31, you will receive Form W2. This form summarizes your pay for the year prior and the total amount of taxes withheld from your pay. A copy of this form is sent to the IRS and your state government taxing agency to make them aware of the money you made and your potential liability for taxation. Make sure your employers have your current address so that you receive your W2 without delay.
If you meet the filing requirements, you must file an income tax return and pay any outstanding liabilities or receive a refund if more than you owe was withheld from your wages. The 2012 filing requirement for a single person is $9,750. If you made less than this amount, you are not required to file a tax return. If, however, you had taxes withheld, you may wish to file in order to get a refund. If however, you can be taken as a dependent on your parents’ tax return, check out Filing Requirements for Dependents to make sure you are in compliance.
To file your tax return, simply go to IRS Free File where you will be taken through a step-by-step process to electronically file your income taxes at no cost to you. Just remember that if your parents can claim you as a dependent to check the box indicating this on your tax return. Also note that if you are required to file a state income tax return, you will have to go to your state’s website and file there as well.