by Andrew D. Schwartz, CPA
I graduated from Wharton in 1987. For those of you keeping score at home, that means I’ve been working at my practice for a score and a quarter. Now that I’ve been practicing for twenty-five years, many of the clients I picked up earlier in my career have children in high school or college who have part-time jobs.
So far this tax season, I’ve noticed that most of these kids who work are incorrectly having federal and state income taxes withheld from their wages. Please note that a working child will generally owe no income taxes unless wages earned exceed $5,950 in 2012 (Update: this amount is $6,200 in 2014) and/or investment income exceeds $300. Needless to say, most of the kids are getting back all the federal and state income taxes withheld during the year.
The IRS wants to help parents of working children avoid the headaches and costs of preparing tax returns for their kids who won’t earn enough to be taxed. All you need to do is have your child write the word “Exempt” in Box 7 of the Form W-4 that is generally completed the first day of employment. If your child previously submitted an incorrect W-4, please have them file a corrected one with their employer as soon as they can.
Here is what the IRS says in their instructions to the Form W-4:
Exemption from withholding. If you are exempt, complete only lines 1, 2, 3, 4, and 7 and sign the form to validate it. Your exemption for 2012 expires
February 18, 2013. See Pub. 505, Tax Withholding and Estimated Tax.
And here are the instructions on the W-4 for line 7:
I claim exemption from withholding for 2012, and I certify that I meet both of the following conditions for exemption.
- Last year I had a right to a refund of all federal income tax withheld because I had no tax liability, and
- This year I expect a refund of all federal income tax withheld because I expect to have no tax liability.
If you meet both conditions, write “Exempt” here .
Do yourself and your kids a favor by having him or her write the word “Exempt” on Line 7 of the W-4 form. Your working child will have more money to spend sooner (and will hopefully ask you for less of your money during that time) since no federal and state income taxes will be withheld from their wages. And you won’t get stuck preparing a 1040-EZ for your child or paying your CPA $125 or more so your kid can get back their tax refund.
Schwartz and Schwartz, CPAs News 
This is very helpful. I now feel comfortable with having my daughter claim exempt on her W-4. Thank you
What if my child claimed exempt not expecting to make more than $5000 but now has received her W-2 and shows that she has made almost $9000. Now what do I have her do? She is 17 and a full time High School Student.
If your child earns more than $5,950 in 2012, she will owe federal taxes at a rate of 10% on the excess. She will also owe state taxes based on the state where she works and lives.
If the money is sitting in a savings account, consider having her take $5k of the money to contribute into a Roth IRA. With a Roth IRA, she can always take back her contributions tax-free.
What happens if they claim exempt at start of the year and then work more than expected and get more than the 5950
If your child earns more than $5950, he or she will owe federal taxes on that income. At that time, your child can file a new W-4 form with the employer, no longer claiming exempt, and instead, claim single with 0 or 1 allowance. Taxes will begin to be withheld from her pay at that time.
What should I do if I am going to turn 18 in a month? Should I still file as exempt (I’ll be going to college in September)? I definitely won’t be making more than $5,950 though
Great question. Your age doesn’t really matter. If you will earn less than $5950 this year, you don’t need to have federal income taxes withheld, since you’ll owe no taxes. One exception would be if you also earn more than $300 in interest, dividends, or capital gains. In that case, you might want to have federal taxes withheld to cover the taxes due your investment income.
Hope this helps.
What should I do if I am going to turn 18 in a month? Should I still file as exempt (I’ll be going to college in September)? I definitely won’t be making more than $5,950 though
I’m a minor and my job won’t give me a w4 form? Is that legal cause I’m a minor, I asked and they said I didn’t need to sign anything I haven’t even given them my social number. Also, I’m paid in cash? Is that alright?
Hi Rachel, that’s not 100% correct. A W4 form doesn’t have anything to do with your age. It’s required for employers to do so they can withhold the correct amount of taxes from an employee’s paycheck. It sounds like they’re paying you as an independent contractor and not as an employee, since they aren’t issuing an actual paycheck. Technically, you will still need to report the cash you receive as income on your tax return. You can thank Al Capone for that (just kidding)!
Okay. Its 2013 now and my son is getting his first job. Has the amount changed for this year 2013? If it has what is it? If he will only make $1,600 to $2,000 can he still claim except? Please answer quickly starts job on Monday. Thank you. Nikki C.
Yes, the threshold is $6.1k for 2013. So he can still file as exempt for his federal taxes on his W-4.
I have a question? my son is 17 years old and is getting a summer job and will not make more than 3,500. If he claims exempt on his w-4 will there be a problem with me claiming him on my tax return?
Thanks for your question. Whether or not your son claims exempt on his W-4 has no bearing on your ability to claim him as your dependent on your tax return. As long as your son meets the age, relationship, residency, and support tests to be a qualifying child — and it sounds like he does — then you can claim him as your dependent.
Hi, I have a question, I claimed exempt on my w-4 when I started my job I got my first pay check and they withheld federal taxes. I told my boss, he said to call the companies accountant. I did and she told me that I can’t claim exempt everybody gets withheld and you can file at tax time. Any advice?
Yes, complete a W-4, and put exempt on the appropriate line. You can download a W-4 form at:
http://www.irs.gov/pub/irs-pdf/fw4.pdf.
And I wrote a short article about this topic for MDTAXES available:
http://www.mdtaxes.com/news0513.html#2
I hope this helps. If not, please post a follow up question.
Hi, I just re-read your question, and don’t think I actually answered what you asked. If your employer refuses to stop withholding federal income taxes from your pay, you’ll just need to file a Form 1040-EZ next winter to get those taxes back While you generally don’t want to give the government your money to hold, it will be nice to get tis tax refund check next winter. You should be able to prepare and file a1040-EZ by yourself. If not, I think TurboTax allows you to file one for free using their software.
This situation is an example where the complexity of the current tax rules doesn’t allow for them to all be followed exactly per the rules.
I’m relieved by the instructions to put “Exempt” because it’s what I told my kids (who are just working minimum-wage jobs for 8 weeks this summer) to do, but I’m confused by the statement on the W4 form that says “Note. If another person can claim you as a dependent on his or her tax return, you cannot claim exemption from withholding if your income exceeds $1,000 and includes more than $350 of unearned income (for example, interest and dividends).” Why would the IRS use the $1000 figure?
Hi Julia. While it’s true that a child that can be claimed as a dependent won’t owe any federal income taxes on the first $6,100 (in 2013) of wages earned during the year, that only applies if the child has less than $350 of investment and other unearned income. A child with total income of more than $1,000 in a calendar year that includes more than $350 of interest, dividends, capital gains, inherited IRA distributions, taxable scholarships, and other unearned income will be taxed on the excess over the $350 threshold (in 2013).
The tax rate on the first $1,000 earned above this threshold is quite low, and after that, the child is most likely subject to the “Kiddie Tax” on this income, and will be taxed at the parent’s marginal tax rate. The Kiddie Tax applies to all kids under the age of 19, and then to kids under the age of 24 who are college students still be supported by their parents.
I hope this brief answer helps.
Thank you for clarifying! I too was confusing myself with this statement, somehow missing the “AND” before the unearned income! 🙂
We are self employed and pay our 9 year old daughter $100 a week for helping with odd jobs around the office and “modeling” in some of our advertisements. For the year our daughter will make less than the $6100 (2013). We plan use this money to fund a Roth IRA. Will the earnings from this Roth IRA investment count towards the $350 threshold? We also have 529 investment earnings for college. Should we keep her in the exempt status?
Hi. By being self-employed, you get to deduct the wages you pay your daughter, and since she is under the age of 18, she’ll owe no Social Security or Medicare taxes on the money she earns.
With respect to the $350 threshold for investment earnings, that only applies to money held in a taxable account. So the earnings in her Roth IRA and in the 529 accounts for which she is a beneficiary don’t count.
So she will need to pay federal and state or should we keep her exempt?
As long as your child has less than $350 of investment income in a taxable account, and earns less than $6,100, you can continue to claim Exempt for federal taxes. Whether the child will owe state taxes depends on the state where you are self-employed and the state of your residency.
Hi, I just got a part-time job and I am 18. On my W-4 form i put i was claiming 0 allowances and I want 0.00 deducted from each pay period. I then put I met the conditions form exemption. Did I do that correctly?
Brianna, I think all you need to do is write the word “Exempt” in Box 7 of the Form W-4. Here is a link to the W-4 form: http://www.irs.gov/pub/irs-pdf/fw4.pdf.
If your high school son claims exempt at his part time job. Does he still need to do a tax return at the end of the year?
If his gross wages are below $6,100 (in 2013) and he has less than $350 of investment income, your son probably won’t need to file a tax return. He will want to file a tax form if he had federal or state taxes withheld to get those taxes refunded.
Hope this answers your question.
My son just started a part time job (he is 17) and we’ve claimed “exempt” on his W-4 for 2013. Since he’ll be working approximately 20 hours at minimum wage next year, it’s likely he’ll exceed the $6,100 threshold in 2014 — first, do you know if the income threshold will increase in 2014 and secondly, should he complete a new W-4 in January claiming -0-? Thanks!
According to the IRS, the maximum a child can work in 2014 and not pay taxes increased by $100 to $6200. If you feel your son will earn more than $6200, you will probably want to have federal taxes withheld throughout the year. Claiming Zero on his W-4 will result in the most taxes being withheld, with less taxes withheld with each additional exemption claimed. As a rule of thumb, an unmarried person who does not itemize their deductions will break even by claiming Single – 1 allowance.
Hope this answers your question.
My son is 6 and is a child actor. He began the year working a few jobs here & there & I didn’t anticipate him making more than the $5,950. Well, he is beginning to get a lot more work & I am worried that he may end up going over that amount. Since he is a child actor, we put most of his money in a Blocked Coogan Trust Account – which can’t be touched until he is 18. Should I not write ‘exempt’ on his next W-4? That way he will pay in on his next check?
Hi, To be honest, I never heard of a Blocked Coogan Trust. I would definitely seek out the expertise of a CPA or Tax Professional who deals with these type issues. A great place to fine a listing CPAs and EAs by specialty is http://www.FindAGoodCPA.com.
Both of my sons filled out their W-4 incorrectly. How do I get a refund on all of the taxes they paid in 2013 (and 2012)? Thank you.
Yes, they will definitely get these taxes refunded. You just need to file federal and state tax returns for each year that they had those taxes withheld as reflected on their W-2s.
I’m 16 and I just got back a W2 with only 117.47 & I have worked since July .. I have federal taxes withdrawals out of my paycheck the whole time, but I made less than 3,000 . is the W2 wrong ? do my parents have to report this?
Hi Alondra, I’m not sure if your W-2 if correct. What I can tell you is that if you receive a W-2 form you would not report that income and withholdings on your parents’ tax return. If you had federal income taxes withheld per your W-2, you’ll want to file a tax return to get those taxes refunded to you.
My 17 year old son had a short term job where he claimed 0 and made just a little over 2,000.
I still claim him on my taxes but how do I get the taxes he paid back to him? Do I file a seperate tax refund for him?
To get back any federal taxes withheld, you’ll need to file a Form 1040EZ. Just show no taxes due, put down the federal income taxes withheld, and that amount will be refunded.
Please note that Social Security and Medicare taxes withheld won’t be refunded.
Any state taxes withheld can also be refunded too, subject to the rules of the state where you live or work, and as long as a state tax return is filed.
I just turned 18 & I worked multiple jobs in 2012. I was told to put exempt on my w4 when I first started my first job of the year when I received my w2 I made over 6,000$ on one of my jobs alone… All 3 of my jobs I claimed exempt… I am very confused what should I do?
Hi, If you earned more than $6,100, you will owe some taxes with your tax return. Complete a Form 1040-EZ, see by how much your wages exceed the $6,100 threshold, and then look at the tax table to see what the tax liability is on that much taxable income. Please note that the first $8,925 of income over and above the $6,100 threshold is taxed at 10%.
Good luck completing this paperwork.
I have a question I hope you can help with. My daughter is 17, she will be 18 this December. She just started a job last week where she will be working part-time. Her job told her to claim 0. However she also receives social security death benefits because of her fathers death a few years ago.
What is the correct way to handle her W-4 form if she receives this income which is around 10,000 a year. More then likely she will make around 3000 to 5000 this year from her job alone. She will not finish high school till she is 19 due to being in a college/high school program. (if that makes a difference at all, I’m not sure) I still claim her as a dependent because she will live with me full time till she is done with high-school/college.
Thanks so much for your quick reply.
Brooke
I would say that you want to enter that information into a free on-line version of TurboTax or a tax program like that and see what answer you get. That will let you know whether to have federal or state taxes withheld on your daughter’s wages. I’ve never run across an scenario like this yet so can’t say with 100% confidence that she can claim Exempt.
OK thank you.
I will do that later this evening. I do appreciate your time spent in sending me a response.
Brooke
Let us know what you find out!
I asked the question above in regards to my teenager now working and also receiving social security death benefits.
When I filed the paperwork through turbotax it looks as if all of money that is being withheld from her paycheck she would then receive back in a tax return if she were to file one.
When i added in her social security benefits it stated that this was non taxable income for my daughter.
So it looks as though she should be claiming exempt as well. I’m sure she will be happy to redo the paperwork so she can get a bigger paycheck.
I feel sick. Tried to efile and it says because my son filed his own taxes for a very part-time first job and filed NOT exempt, we can’t claim him as a dependent. Now have to mail it all in, explaining the error. What a needless mess. Hope we can still claim him.
Yes, this is definitely a headache for you. Your son will need to file an amended tax return not claiming himself as a dependent. By doing so, you can file a paper return claiming him as a dependent. Definitely a pain in the neck. Probably never even occurred to your son that he had a decision to make about whether to claim himself or not. This is just another example that the current tax rules are way too complicated.
So if I am 19, dependent, and make under 6100, I can claim exempt on my w4?
Yes, that sounds correct Katelyn. If you claim exempt, your employer won’t withhold any federal or state taxes. And if you earn less than $6100, you won’t have to bother filing a tax return to get back taxes withheld.
Thank you so much! I’ve been absolutely panicking about this; mine and my sister’s FAFSA was chosen for “Verification”, and I was terrified that it was because I did something wrong.
My son completed a W-4 at the end of last year (when he started his job) claiming exempt. He has not completed a new one for 2014. First, does he need to complete a new W-4 and second, what if we claim exempt but then it starts to become that he’s going to earn over $6,100 in 2014? Does he need to complete a new W-4 mid-year? Not sure how to handle it if we don’t know the earnings he’s likely to make (he’s 17 and works part time currently but may pick up more hours during the summer months). Thanks for all your help on this!
Hi. To adjust his withholdings, he just needs to file a new W-4 with his employer. Once he does so, they will begin to withhold taxes based on the filing status and number of exemptions reflected on the W-4. In the worst case, he doesn’t file a new W-4, and earns more than $6200 (the 2014 standard deduction). In that case, either he or you will need to pay some federal taxes when he files his 2014 tax return next winter.
Thank you so much! This site is such a great help – really appreciate you taking the time to answer my question.
How can my 17 year old daughter even sign this contract when she is a minor?
Great question. Here is what the IRS says in the instructions about kids signing their returns:
Child’s return:
If your child cannot sign the return, either parent
can sign the child’s name in the space provided. Then, enter
“By (your signature), parent for minor child.”
I didn’t say so above, but thank you for the informative article.
Hi Brooke. Check out this information available on http://www.irs.gov (http://www.irs.gov/uac/Newsroom/Are-Your-Social-Security-Benefits-Taxable) that says that Social Security Benefits aren’t taxable if your child’s income plus one-half of the Social Security benefits are less than $25k.
I am 17. I will am filing out for my second job of the summer. Before these two jobs I haven’t been employed. I won’t be gaining a total of $5,950 from any one job. However, from all three of jobs that I will have this summer and the two that I will have this winter, before the end of the year I may accumulate more that $5,950. Should I claim exempt sir?
Hi Jay. Wow, you’re earning a lot of money for someone who is just 17 years old.
For 2014, the amount you can earn without paying federal taxes is $6,200. If you’ll exceed that threshold by a few dollars, you’ll only be taxed at a rate of 10%. So let’s say you will make $7k, your tax will be just $80. ($7000 – $6200) * 10%.
However, according to the IRS guidelines, you are not supposed to claim Exempt unless you expect to have 100% of your federal withholding refunded. However, if you expect your tax to be just a few hundred dollars at most, and you will be able to pay those taxes next winter, why not claim exempt and get all the money up front?
If your taxes are going to be higher than a few hundred dollars, I strongly recommend that you have the right amount of taxes withheld throughout the year. It just makes things easier when it comes time to file your tax returns. I’ve seen a lot of clients fall behind on their taxes because not enough taxes were withheld from their salaries, and they have a very tough time getting caught up with the IRS.
Hello. Can you file a 1040ez any time to get a refund of income tax withheld? Just realizing that some income tax was withheld in 2013 that we could get back. What do we do since it is well after April 15?
Yes, I believe you have three years from the initial due date of the tax return to file a late tax return and get any overpaid taxes refunded. So prepare and file that 1040EZ as soon as possible. Even though the form is late, you should not get hit with any underpayment penalties.
Hi, my daughter, 9 years old, is just starting a career in acting, singing, etc. I want to be proactive about the tax issues. I am accustomed to being able to deduct expenses for my personal business taxes. I have read that expenses (i.e. travel, accommodations, training) can only be deducted for a child actor if the expenses were paid by the child, not the parents. Do you have any suggestions for how I can make this possible, since she does not yet have income? For example, can we “gift” her a certain amount of money to put into her own savings/checking account, and then have her pay for all expenses from that account, thus being able to deduct the expenses? Or would another possibility be to set up a “management business” under our names, and then be able to deduct those expenses as our own business expenses? Thank you for your suggestions!
My CPA firm doesn’t deal with any clients in the arts, so unfortunately, I don’t have any experience to draw from. If your understanding of the rules is that only expenses paid by the child are deductible against the child’s income, then gifting money to the child and then paying those bills out of that account makes sense. Another less good option might be to keep track of all the expenses you incur on behalf of your child, and then your child can reimburse you once she has income. Assuming your child has potential to earn a decent amount of income from her career, it probably makes sense to meet with a tax person who works with other child performers.
Hello I was wondering if I made 5,800 while claiming exempt and then just received a new job and now am claiming single 1 on taxes am I going to owe a lot of money at end of year or will it cancel out? I was making 10 hour now I’m making 18 hour so I should have a lot more money taken out for taxes than what I would of at my old job.
Hi Zach. The federal income taxes you will owe for 2014 will be the total wages on your W-2 minus the standard deduction of $6,200 times 10%. This calculation will be correct as long as you don’t make more than $15,200 in total wages this year. So if you earn $10k from all your employers, your federal income tax will be $380. I got this by subtracting the 2014 standard deduction of $6,200 from $10,000, which leaves $3,800 of taxable income, and then multiplying the taxable income of $3,800 by 10%.
Once you make this calculation, figure out how much federal taxes you’ll have withheld for the year, and see if you will still owe money for 2014 or will be due a refund. If you will owe money, make sure to either ask you employer to withhold additional taxes (which you can do on Line 6 of the W-4 form), or set aside money in a savings account to cover the projected shortfall.
My kid will be earning 6100 from wages and will have dividend income 750 usd in the utma account in 2014. I believe I will be needing to file taxes separately for my kid and show her as dependent in my return. What should be her setting in W4 ?? Exempt ?? since there may not be any taxes due to her.
Hi. The $6,100 of wages earned by your child will be fully offset by the standard deduction. That will leave $100 of the $6,200 Standard Deduction to offset your child’s investment income of $750. Whether the $650 is taxed depends on whether the investment income is from “qualified dividends” which will make that income tax-free to your child. Worst case is that your child owes $65 in tax on the $650 of taxable income. I recommend that your child file the W-4 claiming Exempt and then you just write a check for the small amount of taxes due when you file the tax returns next winter.
Very concise and helpful article! Thank you for posting!
Thank you, Suzanne!
Hello, I am 18 and have just started working part time this nov, my wages are minimum wage and I work a minimum of 20 hours a week. I will also be starting college in the spring of 2015. Do I put that I am tax exempt in my w4 and how would I go about filing my tax return?
Hi Rayyana. I see that I didn’t respond to your question. Sorry. If you’ll be earning $160 per week, I would put exempt. Once your earnings in 2015 exceeds $6,300, you can instruct your employer to switch your withholding to Single – 0 allowances.
Hi Mr. Schwartz — we followed your advice last year and claimed “exempt” on my 17 year old son’s W-4, anticipating he would make less than the Standard Deduction of $6,200. However, my son ended up earning $7,165 during 2014 – my questions are: (a) does my son need to file a tax return for 2014 (presumably a 1040EZ); (b) if he does, will it be clear when completing the form that the tax due is only on the excess of $6,200; and (c) should my son ask to complete a new W-4 at his workplace and claim “1” or “0” for 2015? Thank you for your reply
Great questions. Yes, your son will need to file a tax return. He’ll file the 1040EZ, and if you make sure to indicate that he is still a dependent of you, the standard deduction of $6,200 will be allowed. He’ll be taxed on $965, and will owe $97 to the IRS. It’s up to you if you want to continue for him to claim exempt, or if you’d prefer not to write a small check to the IRS at the end of next year (assuming he earns more than $6,300).
THANK YOU, I was 95% sure that my kid could file exempt but I did a quick search just to make sure and I stumbled across your article….which answered my question cut and dry!
My 16 yr old got her first job in august of last year and made $3,200 in 2014. She completed a 1040EZ and is getting all of the federal taxes back that were deducted from her pay. Now in filing state taxes, TurboTax says she owes $95. Huh? On Maryland’s website, it says she doesn’t even have to file if she made under $10,100. I figured it would say she owed nothing, since NO state taxes were taken from her pay (according to her W2). I have 2 questions: How can federal taxes be deducted, but no state taxes? (what did she put in that box?) and Do you think this is a glitch in TurboTax’s software? …because what we will ultimately do is file Federal but not State.
Hi, my colleague from Maryland was kind enough to give me this information:
Anyway, my guess is that the taxpayer entered some information incorrectly to generate this result. If she made less than $10K, even as a dependent, she doesn’t need to file a Maryland return. I think that the person put down that she worked in Maryland but did not live in Maryland in which case a non-resident tax is being assessed. That tax apply if they had gone further into the non-resident tax return, which maybe is beyond TurboTax’s capabilities.
Thanks so much for the reply.
Any idea why NO Maryland taxes are being deducted? She entered “O” in the exemptions box.
My guess is that the withholding tables for MD don’t kick if it appears that a person will not exceed the $10k threshold during the year that my colleague from Maryland alluded to. There might be information on http://www.marylandtaxes.com about this. My CPA firm only handles a few Maryland tax returns per year so I’m not able to get you a better answer at this time.
Makes sense to me. Thank you so much for your reply!
I have a question, if your child turns 17 by the end of the year, basically you cant claim them on your taxes (you can, you just dont get any money)… my question to this is why?
They are still dependent on me, I still provide well over half of their expenses… it is the same with my 19 yo who is bipolar/add and has issues keeping a job and is on meds.
I just dont understand if they are still so dependent why the single parent cannot claim and get the eic credit! To me this is insane.
When a child turns 17, you no longer qualify for the $1,000 annual tax credit. You can still claim your child as a dependent. Losing the $1,000 tax break hurts though.
I’m not too sure about how the child’s age impacts the EIC. I haven’t worked with that tax credit much., Sorry.
I have 19 in college fulltime she has a job made around 5,000 can still claim her. She also files exempt on her w4 . does she have to file a teturn if im claiming her. Please respond.
A child under the age of 24 who is a full-time student can always generally be claimed as a dependent on her parent’s tax return. And if she filed Exempt on her W-4 she does not need to file a tax return if she earned less than $6,200 in 2014 and had less than $300 of additional non-wage income (such as interest income,) I would recommend that you take a quick look at her WE-2 to make sure that no federal income taxes or Mass income taxes were withheld.
We have children in our sole proprietor company.. They make under $5000 per year. Their W2’s
have exempt status in box 7. While processing our W2’s our total gross wages are correct–and the social security and medicare wages accurately subtract our childrens total wages from these amounts. How do I let the IRS know, on my childs W2, that his wages are exempt? I do not see a line or box that asks if there are any exempt wages and why.. Could you please help me with my dilema? Many thanks for your time.
It sounds to me that the W-3 was prepared correctly. It’s okay for the wages reported on Box 3 and Box 7 to be different then Box 1 wages. If the government has questions about what you filed, they’ll you know, and you can just send in a response explaining what happened.
I am a college grad who is still a dependent, but was recently offered a full time job. I will be making way more than $6.1K. On my W-4, should I put 0 or 1 on line 5? Also, what should I put on line 7? I’m not sure if that applies to me.
As a rule of thumb, if you work for just one employer for a full year and don’t have much going on with your taxes, you will get a refund by claiming 0 allowances, will break even by claiming 1 allowance, and then will owe if you claim 2 allowances or more. Keep in mind that none of this changes your total tax liability for the year, it just determines how much taxes you will owe or get back for that year.
However, it sounds like you will not be working a full year this year. Since the withholding tables assume you’ll make the same amount of money each pay period for a full calendar year based on the current paycheck, you may end up over-withheld this year if you claim 0 or 1 allowance on your W-4 this year. To get a little more money in your pay check, why not claim 2 or 3 allowances for the rest of the year, and then switch to 0 or 1 allowance next year. I would recommend that you work through a quick tax projection after you get your first few pay stubs, however, to make sure you won’t end up owing money this year if you claim more than 1 allowance.
And if you will earn more than $6,300 in 2015, you shouldn’t claim exempt and have no federal taxes withheld, so you shouldn’t write Exempt on Line.
Here is a link the the W-4 form: http://www.irs.gov/pub/irs-pdf/fw4.pdf.
Good luck at your first post-college job!
I am 19 should I claim exempt for a job that I will only be working for about 2 weeks and I still attend school but will probably get another job latter on
Hi. If your total wages this year from all your jobs will be less than $6,300, you should probably claim exempt to avoid having federal income taxes withheld that you won’t get back from the government until you file a tax return next winter. You don’t need to be under a certain age to claim exempt,
What if this is your first job? To meet the criteria “Last year I had a right to a refund of all federal income tax withheld because I had no tax liability”, wouldn’t you have had to have been previously employed?
Hi Phil. Congratulations on your first job! I would say that if you will be earning less than $6300 in total wages this year you can claim Exempt.
Thank you for the great informative article and responding to everyone’s questions.
I ended up writing 1099-misc last for 2013 and did W2 for 2014, where my daughter made about $3000 in my sole proprietorship (parent owned) small business. I deducted the wages on my schedule D.
1) Is she required to file her own return for 2013 and/or 2014? (even if there is no withholding done)
this year, I found that the most accurate way for me is to write them W2’s but when I wrote them wage check I did not withhold any taxes. I know that she will have no FICA or FUTA taxes as she is under 18 and 21 resp. and there was no Federal withholding because i knew she was not going to make more than $5000.
I see lot of people in these messages are in a similar situation but nobody asked about payroll taxes. Am I liable for payroll taxes in this scenario? How do I pay for backdated year?
Appreciate any help on this matter.
Hi. Here is an article I wrote back in 2007 available at http://www.mdtaxes.com/news0507.html:
MONTHLY TAX NEWSLETTER
May 2007
ARBITRAGE IN THE TAX CODE EQUATES TO FREE MONEY FOR YOUR FAMILY
by Andrew D. Schwartz, CPA
Free money. Reward without risk. Both of these phrases describe the term Arbitrage.
Many financial firms spend big money on talented personnel and sophisticated software to try to locate and exploit opportunities for arbitrage. One common technique is to purchase shares of a company’s stock on a domestic stock exchange, while simultaneously selling the same number of shares of that company’s stock on a foreign exchange.
By capitalizing on minute fluctuations in the foreign exchange rate between the U.S. dollar and that country’s currency, this set of transactions can generate substantial profits. And since the firm simultaneously buys and sells the same number of shares in the same company, they never take on any of the risks generally associated with owning stock of a publicly traded company.
Financial gain without risk – that’s what arbitrage is all about. Would you believe that the IRS provides self-employed individuals with an opportunity for arbitrage? All you need to do is employ your child under the age of 18.
The Basics
According to the IRS’ Circular E, Employer’s Tax Guide, “payments for the services of a child under age 18 who works for his or her parent in a trade or business are not subject to social security and Medicare taxes if the trade or business is a sole proprietorship or a partnership in which each partner is a parent of the child.”
Plus, your child will not owe any federal income taxes as well, provided he or she earns no more than $6,300 in wages (during 2015), and has no other investment income.
On the other side of the equation, you as a business owner get to deduct on your Schedule C all the expenses paid during the year in connection with your trade or business. Keep in mind that salaries and wages paid to your staff, including reasonable wages paid to your child, count as allowable expenses.
Arbitrage In The Tax Code
Let’s look at an example where:
You’re in the top tax bracket
Your wages and net self-employment income do not exceed the social security max of $118,500 (in 2015)
You pay your child $5,000 in 2015
With a top marginal tax rate of 35% (the top rate is now 39.6%), and a top self-employment tax rate of 15.3%, the $5,000 of wages you’ll deduct on your Schedule C saves you just about $2,400 in federal income taxes and self-employment taxes. Meanwhile, on the $5,000 of wages received, your child won’t pay a dime in taxes.
So by paying your child $5,000 in wages, the IRS rewards you with a $2,400 tax break. A risk-free transfer of money from your business checking account into your child’s savings account earns you a substantial financial gain of 48 cents on the dollar. Sounds like arbitrage to me.
Caveat Employer
The IRS is well aware of this strategy, and there are certain guidelines you should follow for this deduction to survive an audit.
Set Yourself Up As An Employer. You’re required to obtain an Employer Identification Number (EIN) and file certain payroll tax forms, including a From 941 each quarter or a Form 944 annually. You will also need to issue your child a W-2 each January. Most CPA firms can help you out with this paperwork.
Pay Your Child a Reasonable Wage. The IRS wants to see you pay your child only for the hours worked at a rate commensurate with that you would pay a non-family member to do a similar job. It’s a good idea to document your child’s wages with timesheets or work logs.
Compensate Your Child Throughout the Year. Writing your child a check for $5,000 on December 31st won’t cut it in the eyes of the IRS. Instead, if you have other employees, pay your child as often as you pay your other staff. Otherwise, you should probably prepare your child’s paycheck no less than monthly.
Additional Benefit
Putting your child on payroll also provides you with the opportunity to contribute to a Roth IRA on behalf of your child. Each year, your child can contribute the lesser of his or her gross wages, or $5,500 into a Roth IRA.
Assuming the Roth rules don’t change during your child’s lifetime, your child will benefit from decades of compounded growth within these tax-free investment accounts. While contributing to a Roth IRA doesn’t qualify as arbitrage, it’s still a great tax-planning strategy worth pursuing.
I’m a full-time college student and I will be getting a job over the summer. I anticipate making somewhere between 6-7k. Should I claim exempt? If I claim exempt and it turns out that I make over $6300, do I need to file my own tax return?
Hi, If you earn more than $6,300 this year, expect to owe taxes at a rate of 10% on the excess. You will need to file a tax return, and you can remit the balance due at that time. Let’s say you earn $10,300 during 2015. In that case, you’ll owe the IRS $300 in federal income taxes when you file the tax return. It’s up to you if you’d prefer to have those taxes withheld while you’re working, or will just send them a check next winter.
I just want to thank you for all the time you put into the article and answering each and every question! All the information was so helpful as we’re filling out our child’s first W-4. We’re going with exempt. I do have one question about that though… can he still open a Roth IRA if he doesn’t file? I’m guessing so, since he’ll have earned income. He’s also under 18, can he open a Roth?
Hi Kellie. Great question. It’s my understanding that your child can contribute to a Roth IRA based on his or her W-2 earnings even if no tax return is filed. For 2015, your child can contribute the lesser of gross wages reported on a W-2 or $5,500. Contributing to a Roth IRA will give your child decades of tax-free growth on the money contributed, assuming the government doesn’t change the rules during your child’s lifetime. Plus, your child can always take back any money contributed to the Roth IRA without incurring any taxes or penalties. They will owe taxes and a 10% early withdrawal penalties on any income removed from the account after all the post-tax contributions have been removed.
I think contributing to a Roth IRA a great strategy for any parent of a working child.
My son is 19 and a college student. He has already started his summer job and thinks he filled out his W4 as single with “1” allowance or maybe “0” allowance (yes, he filled it out without knowing what exactly it all meant and his employer offered no assistance). He has received his first pay checks and naturally federal and state (RI) taxes have been withheld. Since he will be make just shy of $6300 this year and has no measurable unearned income, should he submit a new W4 with “exempt” in line 7? If so, then does he have to file a 1040EZ next year to get what was already taken out refunded?
Hi Mary, If your son will earn less than $6,300 in wages this year, he might as well file a new W-4 claiming Exempt. He will need to file a 1040EZ next winter to get back the small amount of federal income taxes withheld from his first pay check. Ditto for the state – depending on the state you live in and/or where he works.
Hello! I’m 17 years old and am turning 18 in about a two months, I currently work a part time job at about 20 hours a week or so at $10 minimum wage. I know that I will earn less than $6,300 this year, however I read another article stating that I can not file exempt if I am a dependent. Is this the case? As I do not want to end up paying a fine. I also read that if I am dependent and make more than $300 of “unearned” income, I am also not eligible, would that be as though my parents giving me $300 and I deposit it into my bank account? I’m a bit confused as for what to fill out, please help, thank you in advance.
Hi Kevin. Unfortunately the tax rules are overly complicated which causes most working people to deal with some level of uncertainty when trying to comply with the rules. In general, money given to you by your parents is not income. The interest earned on money held in your savings accounts is “unearned income”. You would need to have a lot of money in your savings account to pay you more than $300 of interest. (If you own mutual funds or trade stocks, it’s easier to hit the $300 limit.)
All this being said, if your wages will be less than $6,300 this year, and you will earn less than $300 in investment income, then please file a W-4 with your employer claiming “exempt” to get the most money you can from each pay check while working, and to avoid needing to file a tax return next winter to get back any taxes withheld.
If you do end up earning slightly more than the $6,300/$300 thresholds, the taxes owed would be nominal, and since IRS penalties don’t generally kick in until the balance due on your tax return exceeds $1,000, you shouldn’t be at risk of paying any fines.
very informative information on filing tax exempt status. just want to get some clarification. my son 16- just got his first job at taco bell- starts next week- if he works thru the rest of the year and makes under $6200 he is allowed to file excempt on his w-4. anything he makes over that amount of money he will be taxed at 10%- is that correct
Hi Brian. That is correct. If your son earns less than $6,300, he’ll owe not federal income taxes on that income. If he earns a little more than $6,300, he’ll owe taxes at a rate of 10% on the excess.
Hopefully the employee discount at your son’s Taco Bell will extend to you as well. That would be a great tax-free benefit I would say!
Hi. With all the activity on this one blog post, it seems this is a topic that many parents and children find relevant. Please check out and then share this 5-minute recorded presentation I put together on how a child or student who earns less than $6,300 in wages during the year should correctly complete the W-4 form by claiming Exempt. This video is available at: https://youtu.be/7ywlxeq-9nE.
Dear Mr. Schwartz- My 17 year old daughter has been working at an ice cream chain since November 2014. The ownership recently changed, and they gave her a new w-4 to fill out. After reading through your article and a lot of the comments, I think she should be filing as EXEMPT based on her earnings being less than the threshold. My real concern is now that I glanced at her W-2 from 2014, I see the previous owners had Social Security and Medicare taxes withheld. Does that make sense given her situation, or does it indicate she did not file her original W-4 as exempt? Depending on your answer, I may have more questions, especially since she did not file a tax return for 2014. Thanks for your help.
Terry
Hi Terry. The employer was supposed to withhold Social Security and Medicare taxes from your daughter’s wages. The Social Security rate is 6.2% and the Medicare Rate is 1.45%. The employer then matches these taxes. All US workers pay that tax, unless they are employed by a state government or meet other exceptions. There is no minimum salary for these taxes.
Claiming “exempt” on the W-4 results in no Federal Income Taxes to be withheld. Federal income taxes show up in Box 2 of the W-2 form.
I put together a 5-minute recorded presentation on this topic available at: https://youtu.be/7ywlxeq-9nE. You might find that presentation to be helpful.
Hello! I just started a job, and I just turned 18 last month. When I filled out the W-4 at my job advised me to file exempt, which I did (I’ll never make 6k in that short time working this job!) but she also told me for my parents to claim me. Is this okay? I don’t want to owe the irs anything.
Great question. It’s definitely okay for your parents to claim you as a dependent, and for you to claim exempt, and as long as you earn less than $6,300 in wages this year and don’t have more than $350 in investment income, you shouldn’t owe any federal income taxes this year.
I just turned 24 last week, I’m in this predicament that proven to be my last childish dance with the devil.
In 2015 I got a easy, yet lucrative job (for a broke student) that I worked from 1/15-6/20/15 and earned $19,000. I don’t think I would make that much so I was exempt. I now have a new job and told myself I would stay exempt through the end of the year (I moved out, new job is half the pay, kinda need all of my checks). What can I do to offset my bill to the irs when I file? I’ve decided to claim 2 allowances on my w4 for 2016. I don’t want a refund nor do I want to owe when it’s time to file again. If my mom claims me, will it help reduce? What should I do?
Hi. I’m not sure what you mean by saying, “I carried myself last year”. That being said, if your parents can claim you as a dependent on their tax returns, you will owe federal income taxes once your gross wages exceed $6,300 in 2015. The rate on the first $7k or so of gross wages you earn this year that exceeds that threshold earn is 10%, For example, if you end up earning $8k, you’ll owe the IRS $170 in federal income taxes with the filing of your tax return. (($8,000 – $6,300) * 10%.) So claiming exempt shouldn’t be a huge deal as long as you put away money to pay the taxes due.
If by “carrying yourself” you are saying that you’ll claim yourself as a dependent because your parents can’t claim you, then you won’t owe federal income taxes until your gross wages for the year exceeds $10,300. Please note that there are very specific tax rules about when a young adult is no longer allowed to be claimed as a dependent by her parents.
The IRS has an online tool to help people figure out who can be claimed as a dependent at: http://www.irs.gov/uac/Who-Can-I-Claim-as-a-Dependent%3F.
Oops. I posted this response to the wrong question. See below.
Hi Yaya. Congratulations for finding such a lucrative job. Hopefully that knack will stick with you your whole working career.
Since you turned 24 last week and will earn more than $4k this year, your parents won’t be allowed to claim you as a dependent. That means that you’ll claim yourself, so the first $10,300 of wages you pay this year won’t be taxed for federal income tax purposes. (For children 23 or under being claimed as a dependent, only the first $6,300 of earned income is shielded from federal income taxes,)
The remaining income will subject to federal income taxes – mostly at 10%, but the final few thousand dollars of income at 25%. However, if you are a student and pay tuition, you should be able to offset the taxes owed on that income. There are a few different education tax credit available to undergrad and grad students. I included information from the IRS in a recent newsletter I wrote available at: http://www.mdtaxes.com/news0915.html#8.
Hope this info helps you out.
I think you meant 15% for the second bracket, not 25%?
Oops. I meant the next bracket is 15%, not 25%. Thanks for catching that Julia!
I just want to add that two oops on one response is two oops too many.
I’m 18 and just filed exempt at a job I started 2 weeks ago this will be my third job. I wanted to know if this was a bad idea since I carried myself last year and will do the same this year. At my first job for this year I made a little over 5,000 and with the second one over 1,000
This is my first time filing exempt.
Hi. I’m not sure what you mean by saying, “I carried myself last year”. That being said, if your parents can claim you as a dependent on their tax returns, you will owe federal income taxes once your gross wages exceed $6,300 in 2015. The rate on the first $7k or so of gross wages you earn this year that exceeds that threshold earn is 10%, For example, if you end up earning $8k, you’ll owe the IRS $170 in federal income taxes with the filing of your tax return. (($8,000 – $6,300) * 10%.) So claiming exempt shouldn’t be a huge deal as long as you put away money to pay the taxes due.
If by “carrying yourself” you are saying that you’ll claim yourself as a dependent because your parents can’t claim you, then you won’t owe federal income taxes until your gross wages for the year exceeds $10,300. Please note that there are very specific tax rules about when a young adult is no longer allowed to be claimed as a dependent by her parents.
The IRS has an online tool to help people figure out who can be claimed as a dependent at: http://www.irs.gov/uac/Who-Can-I-Claim-as-a-Dependent%3F.
This was very helpful. It is now 2015…I remembered when I was a teenager worker and I was told to claim “Exempt”, so now my son had his first summer job and I had him write “Exempt” has the income amount changed?
Hi Trea, The amount that is exempt is based on the Standard Deduction which is $6,300 in 2015. I assume that’s a lot higher than it was when you were a teenager if your son is now working.
Good read but have a question. I have 6 children. My wife owns a DBA business and the children from 6-17 work in the business. It is a small farm, wholesale and fulfillment business. It has no employees. We document work hours and every kid works actually much more than what we pay. But we pay $6300 to each kid thru the year. Do we need to do w-4’s, issue w-2’s etc since there’s no tax involved. We basically just write them a check to their savings accounts. They save some and spend the rest.
This is a great opportunity when you own an unincorporated business, and can employ your kids under the age of 18. The salaries you pay to your kids is fully deductible to your business, and your kids should owe no Federal Income Taxes on the first $6,300 earned in 2015, and no Social Security Taxes, Medicare taxes, or Federal Unemployment taxes on all the wages earned.
When you employ your kids, you are still supposed to file the payroll tax returns including a 944 and 940, and prepare W-2s to distribute to your kids, plus mail copies of the W-2s to the Social Security Administration along with a W3 at the end of the year. You are also supposed to pay your kids on a regular basis for services actually performed. Without preparing this paperwork, the IRS could easily deny this deduction. Remember, the IRS is “form over substance” oriented in many cases, so when paying your kids, you need to make everything appear like you are paying any employee.
So if i claim exempt and i am 18 and a dependent who lets say make a little less than 6300 this year. And i have stock investments over 350 in profit will i have to report my taxes or pay any taxes??
So if i make less than 6300 this year and i am a dependent but my stock investments gains are over 350 what should i do??
Hi. You will need to file a tax return and most likely pay income taxes if 1) your wages exceed $6,300 or 2) your investment income exceeds $350 and your total income including your wages and your investment income exceeds $1,000. Depending on whether the $350 is a long-term capital gain, your tax rate will be either 0% or 10% on the income that exceeds the applicable threshold.
Thank you , so if my income is less than 6300 and my investments reaches over 350 i would only get taxed for investments or both
Great follow up question. You’ll be taxed on the amount that your investment income exceeds $350. Keep in mind that any portion of that income that represents long-term capital gains (investments held more than one year before being sold) or corporate dividends would be taxed at a 0% rate, so you’d owe no taxes on that income.
Hello–you have probably already addressed this, so my apologies if this is repetitive. My son is 18 and has a full time job. He will likely make more than $6100, so sounds like he cannot claim exempt, but can I still claim him as a dependent when I file my taxes? Will he have to file his own taxes as well and how does that impact him still being my dependent? I’m just not sure how the filing will work this year since he has income. Thank!
If he earns more than $6,300 in 2015, he’ll need to file a federal tax return and will owe taxes at a rate of 10% on the excess. So assuming he makes $7k, he’ll owe $70 in federal income taxes. And you will still claim him as a dependent if you provide more than half his support, or he is under the age of 18, or under the age of 24 and a full time college student.
Hi this may be a silly question but if a 18 year old child is at an out of state college and has work study he has to file the w2, what address does he use? his home state address or his dorm address? He also has to do two w4 one federal and one state. need answer for each w4 the federal and the state one. Home state is NJ school is in Maine. Thank you!
Hi. Not a silly question at all. It’s my understanding that your college child will continue to use your home address for as long as he’s at college as an undergraduate. I assume he’ll continue to keep his NJ driver’s license and will vote in NJ as well during college. For tax filing purposes, depending on his total income and whether any federal or state income taxes are withheld, he might need to file a federal tax return, a Maine tax return as a “non-resident” of that state, and then a NJ tax return as a resident. Any taxes paid to Maine on the income earned in that state will offset NJ taxes owed on that income.
Please note that non-residents only report and pay taxes on income earned in that state, while residents of a state report their worldwide income to their home state, and then take a credit for taxes paid to other states as a non-resident. This is how people avoid being taxed by 2 states on the same income. You end up paying taxes at the rate of the state that charges the higher taxes.
Hope this answers your question.
I have a question ? Am 17 and I have 2 jobs my first job I got I did not claim exempt but at my second job I have claimed exempt I don’t know what the California 2015 exempt amount is?? And if I change my first job to exempt what will happen to the amount of money they already took??? Answer back asap plz!!!?!?!?
Hi Andy. By claiming exempt at your first job, that employer will stop withholding federal and state income taxes as of the next pay period. I doubt they will refund taxes withheld while you weren’t claiming exempt. The only way to get back those taxes that were withheld is to file a tax return next winter, assuming your income is low enough that you’ll owe no taxes.
Hope this answers your question.
hi i have a question mu 20 year old made about 7,000 for this year 2015 . she lives with me and is not a student . Will she have to file taxes ? and can i claim her ?
HI April. It’s my understanding that if you have a child over the age of 18 who is not a full time student, and earned more than $4k (in 2015), then she can not be claimed as your dependent on your tax return. If she only earned $7k, I don’t think she would need to file a return, except if she had federal income taxes withheld that she wants to get refunded. Someone not eligible to be claimed as a dependent can earn $10,300 in wages and other income in 2015 before they will owe any income taxes.
Hello,
I am a full-time student who had an internship this summer. I decided to claim exempt on my W-4 forms just for my federal income taxes because I thought that I would be making little enough to receive a full refund. I ended up making about $8,500, which I now realize is above the $6,300 maximum required to file exempt status. I did receive a full refund last year, and honestly thought I would receive a full refund this year, but didn’t do enough research. I am a resident of Pennsylvania, and I am listed as a dependent on my mother’s taxes. How should I go about filing or fixing this issue? Should I call the IRS and explain? Will all I have to do is pay the extra taxes? What will the penalties be? Thanks in advance!
HI Charlene. That’s great you made so much money this year, especially when you were expecting to earn less than $6,300,
For starters, you do not need to “call the IRS and explain”. The way the federal tax system is set up, if you underpay your taxes by a high enough amount, you could get hit with an underpayment penalty. You should NOT be hit with a penalty for 2015 based on earned $8,500, since you had no tax liability last year, and the amount you owe in federal income taxes is less than $1,000.
On $8,500 of wages, expect to owe $220 in federal income taxes when you file your tax return later this winter. ($8,500 – $6,300 ) * 10%.
Next year, if you think you’ll earn more than $6,300, then be careful not to claim exempt. However, if you will just exceed that threshold by a thousand or two, you might still claim exempt and pay the balance due of a few hundred dollars when you file your return.
Hope this helps. (If nothing else, I saved you more than an hour of your time that you would have otherwise spent on hold with the IRS to report something that generally doesn’t need to be reported.)
Great stuff Andrew
Thanks Dave.
My daughter started her first job this year and declared herself EXEMPT. She was well under the $6300. Her employer did not take out federal taxes, but did take out state. They seemed unwilling to correct this for her. Do I just need to file state taxes for her in this case? She made less than $4,000. Thanks!
Hi Kelly. Your daughter will need to file a state income tax return to get back any state taxes withheld. Please note that the states all have different rules and some might have a lower threshold than the $6300 for the IRS before someone is taxed . Hopefully she’ll get back all the state withholding when you file the form for her (or if she files it on her own).
From the employer’s perspective, once they withhold taxes, they generally can’t ask the state to then refund those taxes. Requiring that would be too much of a burden on employers. Instead, those taxes are only recouped by filing a tax return.
Hello, In the spring of 2015 I worked making minimum wage at a restaurant as single and one being my dads dependent. So with taxes being taken out there I would say I made no more than $600 before I quit. I then got a much better job in the summer through the end of 2015 and claimed exempt with only social security and medicare taxes being taken out of my paycheck. Summer through the end of 2015 I made approximately $6,953 at the new job. How much do you think I’ll owe? And does my job at the restaurant when taxes were being taken out affect anything?
Thanks,
Tyler
Hi Tyler. If you earned $600 from one employer, and then $6,953 from a second employer, you should expect to have a federal tax liability of about $125, calculated as follows: ($600 + $6953 – $6300) * 10%.
Any federal income taxes withheld from the first job will reduce the $125 that you owe to the IRS.
Hello, in the spring of 2015 i worked at a restaurant making minimum wage- single and one- as my dad’s dependent. I made no more than $600 working there before I quit. In the summer of 2015 I got a much better job but decided to exempt taxes so only social security and medicare were being taken out. From summer until the end of 2015 I made $6,953 at my new job, including a $200 bonus. How much should i expect to pay in taxes for 2015? And did the job at the restaurant where taxes were being taken out effect anything?
See above response.
Hi I have a question, I started my first job about 1 month ago, I claimed exempt on my w4 form but on my paychecks it appears as single/0. I’m confused? does that mean I’m able to receive federal withhold back? I’m a minor and have been told I can’t claim taxes unless I’m 18 or older. Thanks so much
-Katie
HI Katie. If you claimed Exempt on your W-4, but your paystub shows Single/0, then it seems that your employer didn’t process your W4 properly. I would let your employer know that you should be Exempt for withholding taxes. If any federal or state taxes are withheld, you can get those taxes back by filing a tax return. There is no rule that I’m aware of that states that kids under 18 can’t file a tax return.
Please note that when you claim Exempt, your employer will continue to withhold Social Security and Medicare taxes from your pay check. The Social Security rate is 6.2% and the Medicare rate is 1.45%. You should also note that your employer matches these taxes, so the federal government gets 15.3% from each dollar you earn to fund the Social Security and Medicare systems.
I never got a w 2 form when i worked and i was forced to give every paycheck to my mom how do i get that money back i was 16 and worked for about 4 years i never saw or got a w 2 in the mail what do i do to get that money back?! I am in need of that money.
Hi. The rules actually only give you up to 3 years to file a delinquent tax return and get an overpayment refunded. So unfortunately, some of the older refunds might be lost.
I would suggest you ask your former employer for a copy of your W2s for the past few years. You can still file tax returns for 2012, but it would need to be filed by 4/15/16. 2013 & 2014 can still be filed too.
Hi, I have a question, Can i claim my daughter who is 18 part time student and made 6,080 last year ? she did not file exempt and got a w2 form, she lives at home and i supply all her living and dependant expenses…
HI Christine. Yes, you would claim your 18 year-old daughter as a dependent on your tax return if she lives in your home and you provide more than half her support during the year. Your daughter won’t be taxes on her $6,080 of wages anyhow, since she earned less than $6,300, unless she also earns more than $350 in investment income.
So if she claims herself as a dependent, she would not save any additional federal income taxes, And you wouldn’t also be allowed to claim her on your tax return, so your taxes would increase.
Hi, I worked at a fast food place for about 2 weeks only, didn’t make anything more than $200. I did put exempt on my w4s, I’m 17 years old. I also have daughter, could I do taxes & claim my child since I worked for a small amount of time?
Hi Victoria. I’m not sure if you and your daughter will be claimed as a dependent by your parents. Generally, a family who provides more than half the support for you and your daughter will be the one claiming the exemptions. Hope this brief answer helps.
Thank you for the quick response, I have another question.When I file my tax return Do I receive the same amount of taxes back or less? or does it depend? I’m only referring to the federal/state withhold since I’m claiming single/0.
-Katie
Hi Katie. As a rule of thumb, if you claim Single – 0 allowances, and you only work for one employer, you would generally get a tax refund from the IRS. People who claim Single – 1 allowance will come close to breaking even, and people who claim more than 1 allowance might end up owing federal income taxes. This rule of thumb only applies to single individuals who don’t own a home, work throughout the year at the same pay rate for the same number of hours, and file a simple tax return.
What I can tell you is that you’ll find out for sure when you prepare your tax return.
Hi – This has been such a helpful blog! I have 2 questions concerning this issue: in 2014 my then 17 year old son claimed exempt on his W-4 but ended up exceeding the exemption threshhold amount by about $1,500 and filed a 1040EZ to pay tax on the difference. I don’t know whether he claimed exempt on his W-4 for 2015 (he doesn’t recall completing a new one) but his W-2 for 2015 says (under Exemptions/Allowances) “Federal: 0 – tax blocked” and “State: 0 – tax blocked”. First, does that mean he was considered exempt for 2015? and secondly, if so, does he have to file a tax return for 2015? He earned approximately $2,000 in all of 2015. Since his earnings exceeded the exemption amount in 2014 was he even eligible to be considered exempt in 2015? I’m trying to figure out whether he needs to file a return as we are in the FAFSA completion stage and need to get this done (if its necessary) before the deadline for that filing (this year his college requires it filed by March 1). Thank you for all your help!
Hi Mary Kay. I’m not sure if “tax blocked” means that your son claimed Exempt. Take a look at his pay stub and if no federal or state taxes are being withheld then he probably did claim Exempt on his W-4.
In theory, he’s not supposed to claim Exempt in 2016 if he had a tax liability in 2015. That being said, if he claims Exempt and earns more then $6300 in 2016, he’ll owe federal taxes equal to 10% of the excess. As long as he has money to pay the federal taxes that are due, I don’t think the IRS will make a big deal about him claiming Exempt when he did have a tax liability in the prior year.
Thank you so much for your reply – just a quick follow up. Since I did look at the W-2 and no tax was withheld, does that mean he does not need to file an actual tax return then for the 2015 tax year? Thanks again for your assistance
If he earned wages of more than $6,300 in 2015 then he will need to file a tax return. He’ll owe taxes equal to the amount that the total wages exceed $6300 multiplied by 10%.
Thanks – sorry I don’t think I was communicating well. He only earned $2,000 in 2015 so it appears he does not need to file a return based on your reply above. Thank you again for taking so much time on my question!
My son is 25 he did a temp job last year and got a refund of most of the tax he paid but not all almost all. This year he is going to do a week long job next week at this point his income for this year is 0 ans he could put excempt for this short job if based only on income however the excempt box says only if you meet both requirements 1 being received a refund of ALL fed tax last year and he got a refund yes but of most of his taxes paid not all. Can he still put excempt for this one week job then if its all he’s done this year so far? Thanks
Hi Ann. Claiming exempt will mean that no federal income taxes are withheld. If he ends up making enough money that he will owe federal income taxes, he will just need to make sure to have money available to pay that tax next winter.
I understand what the instructions of the W4 says, but I don’t think that anyone from the IRS is scrutinizing whether young adults earning very little money are claiming Exempt. The IRS does not want people who earn a good salary and owe taxes each year to claim Exempt. Those are the people who might get in trouble if the file a W4 claiming exempt, and then can’t come up with the taxes they owe.
Hi! My son who is turning 17 next month has a job and I have the following questions –
1. Does he need to fill out for W-4
2. If he claims exempt, will I have to pay his taxes if over 5K when I claim him as a dependent
3. I want him to get more money in his paycheck and I want to pay his taxes from my refund (I have 2 other kids) what is the best way to handle this?
Thank you
Hi Angie. To answer your questions:
1. Yes, your son definitely needs to fill out a W-4 (unless he will be paid under the table.)
2. If he claims exempt and he is still your dependent, he’ll owe federal income taxes if he earns more than $6,300 in 2015. The tax rate is 10% for the first $9,225 that he earns over $6,300. So if he earns $15,225, the federal taxes due would be $923.
3. When he does his taxes next winter, you can’t have a portion of your tax refund go directly to pay his tax balance due. Why not just pay his taxes out of your checking account? Assuming your refund goes into the same checking account, you would end up with the same result.
Hope these brief responses answered your questions.
My daughter is 18 amd will start to work in June of 2016. At a rate of 8.50 an hour . I have calculated that shi will make anywhere between 6800-7100 that’s if she works 27 hours a week , so it might be less. My question is what is the cap amount in 2016 for her to file “excempt” on her W-4? Also this amount doesn’t include social security or Medicare, if that’s even involved in this equation
Please advice soon because we must turn in this paper no later than tomorrow.
Thank you,
Julie Gonzalez
Hi. If your daughter claims Exempt, and ends up earning $7k, then you will need to file a tax return for your daughter next winter and pay in $70 in federal income taxes to the IRS. By claiming Exempt, you won’t need to file a tax return for her if she ends up earning less than $6,300 in 2016 just to have federal taxes that were withheld refunded.
Claiming Exempt on a W-4 does not stop Social Security and Medicare taxes from being withheld. Pretty much all non-government employees pay Social Security taxes at a rate of 6.2% on the first $118.5k of salary in 2016, and Medicare taxes at a rate of 1.45%, increasing to 2.35% on wages in excess of $200k.
Hope this answers your question.
Hi Andrew,
My daughter is 16 and will be making roughly $200 month. I spoke with NYS Dept of Taxation and Finance and they said she was exempt for NYS Withholdings. Now when reading the W-4 instructions it states if you can be claimed and make over $1050 you can not claim exemption. My daughter will earn about $1080 for this year. Does that disqualify her from filing exemption status?
Also, is she exempt from social security and Medicare?
Thank you for all your help.
Nope. Your child will be exempt from federal income taxes on the first $6300 earned, but not Social Security and Medicare taxes.
Hi, The $1,050 limit applies to a child who earns more than $350 of income from investments. The first $6,300 of wages and other “earned income” is not taxed to a child, except when the child also has investment income.
Actually, here is what the instructions say:
Note: If another person can claim you as a dependent on his or her tax return, you cannot claim exemption from withholding if your income exceeds $1,050 and includes more than $350 of unearned income (for example, interest and dividends).
Thank you Andrew, so to confirm she can file exempt on her W-4?
Assuming she will earn less than $6300 in wages and less than $350 in investment income, then I would say Yes, she can claim exempt.
Wonderful! Thank you for your help
If my son files exempt why do I have to provide his income to social service for food stamps. His money goes to books, 1,300 for classes , gas, school supplies, gas ect.? How can they count that as my income? I don’t see any of it. Crap a synthetic oil change is 90$ I can’t afford that.?
I’m sorry but I’m not familiar with those rules.
Thank u.i was wondering how to do this.
If my college daughter -who will make less than $5000 this summer writes exempt, can I still claim her as a dependent?
Yes, you can claim a child as a dependent even if she earns more than $4k as long as she is a full-time college student for 5 months during the year and you provide more than half of her support.
You can find more specific answers in IRS Publication 501, Exemptions, Standard Deduction, and Filing Information available at: https://www.irs.gov/pub/irs-pdf/p501.pdf.
My 15 year old son started a summer job as a bus boy. He is claiming exempt on his W-4. Is he also exempt from state taxes as he was given an IT-2104 form to fill out from his employer?
Hi Janet. I suggest you go to the website for your state’s tax department and see how much a person can earn in your state without being taxed. If your son’s gross wages for the year will fall below that thresholds, them have him instruct his employer that he is exempt from state income taxes too.
What if my child is 19 years old and going to college full time? He still lives at home and this will be his first job (it’s a part time job). After reading this, I am having him put EXEMPT on line 7.
My question: In doing this, will we still be able to claim him on our taxes this year?
Also, the amounts you have here are for past years. The current year is 2016. What is the limit for 2016?
Hi Alma. You will generally claim a child as a dependent if that child is under the age of 24 and was a student for at least 5 months during the year.
Hello, my daughter is starting her first job today at age 17. She is participating in her high school work study program. It is estimated that she will make around $3,000 for the rest of this year $200.00 a week or less. Should she write exempt on her W4? What should she write on her State forms? We live in Georgia. Thanks!
Hi. Since it sounds like your daughter will earn less than $6,300 in wages this year, she can claim Exempt on her federal W-4 since she would owe no federal income taxes this year (unless she has interest and other investment income in excess of $350.) For GA, you’d have to find out how much a person can earn before being taxed to see if your child can claim Exempt on the state W-4. That info should be available on the GA Dept of Taxation’s website.
Hello, my daughter is starting her first job today at age 17. She is participating in her high school work study program. It is estimated that she will make around $3,000 for the rest of this year $200.00 a week or less. Should she write exempt on her W4? What should she write on her State of Georgia Employee Allowance Certificate form? Thanks!
Hi there – My only son is starting his first part-time job ever, and I have a question about whether he should write “exempt” on his W-4.
We’re looking at the exempt language and it says:
1. Last year I had a right to a refund of all federal income tax withheld because I had no tax liability, and
2. This year I expect a refund of all federal income tax withheld because I expect to have no tax liability.
I can say #2 is definite, as he will not be making enough to owe taxes this year, however #1 is what is confusing me. He didn’t have a job last year, so he never filed a tax return. Is it required that he filed a tax return and received all of his withholdings refunded last year to qualify for this? Can I not be exempt until my second year of employment?
Thank you in advance!
Hi. I would say that if your son didn’t need to file a return last year because he would have owed no taxes if he had filed, then he would have had no tax liability that year so would qualify for #1.
My daughter just started college in TN where she will be earning money via work study, and all of the research we’ve done tells us that TN does not collect income taxes on wages &/or salary. Since we live in MD, we find that hard to believe. Do you know if that is indeed true?
Also, thank you for such an informative post that has certainly stood the test of time!
Hi Lyn. Yes, a handful of states have no state income taxes, including Tennessee. Other states with no income taxes include Florida, Texas, Washington, Alaska, and Nevada.
Wow! Thank you for the prompt response. We had no idea. Also, we really need to get out more!
My child is 17 years old and works between 10-15 hours a week. He filled out the W4 form claiming exempt but is being deducted for Fed Med/EE and Fed OASDI/EE and State Withholding. Are these not under exemption and will I have to file a tax refund ?
Hi Linda. Looks like he filed the W-4 claiming Exempt which made it that no federal income taxes were withheld. Every employee generally has Social Security and Medicare taxes withheld on all earnings at a combined rate of 7.65%. And there should be a state version of the W-4 to complete and give to your child’s employer to stop state taxes from being withheld.
So what if im a full time student at a trade school for a nursing program and made about 10k ? will i get anything back ?
Hi Deanna,
I apologize for the delay responding. We had an issue receiving notifications of questions posted. To answer your question:
It depends on how much withholding you had paid in. you may get all of that money back. If you claimed exempt and you had no money withheld, then you will not have a refund. Depending on what type of tuition credit you qualify for, you may have a refundable portion. This also depends on if your parent claimed you.
Deanna,
And to follow up, don’t forget that there are tax breaks available to people who pay for courses after graduating from high school. These rules are pretty complicated, and if your parents can claim you as a dependent, you won’t be eligible to claim these valuable tax credits. Undergraduate students might be eligible for the American Opportunity Tax Credit of $2,500 per year, while all students are eligible for the Lifetime Learning Credit of up to $2,000 per year. Both of these tax credits can eliminate any taxes you owe up to the maximum credit. The AOTC does provide for a $1k refund in certain situations.
For more info, check out the IRS Publication 970 on the Tax Benefits for Education available at: https://www.irs.gov/pub/irs-pdf/p970.pdf.
My 4 year old is a child model/actor in NYC. This was the first time he was asked to fill out a w4 form…before we knew how much he would be getting paid. They ended up paying him $7000. Federal took $2000 and state $500 in addition to medicare another $500. How do I correctly fill out his w4 for future bookings? That amount they took can’t be correct…right?
Hi Allie,
I apologize for the delay responding. There was an issue with us getting notified of a post. To answer your question:
You can check off that the child is exempt and they will not withhold any taxes. Some taxes may be due but can be calculated and paid with the actual tax return.
Allie,
To follow up, you should definitely file a tax return for your child to get back most of the federal and state income taxes withheld. And you have until Tuesday 4/18 to put up to $5,500 of those earnings into a Roth IRA for your child. Imagine decades of tax-free growth on that money!
do kids making less that $5000 K per year have deduction for social security and medicare on their checks?? Is there a way to avoid those deductions as they are making less that 5K or are these deductions mandatory??
Hi Anju,
Social Security and Medicare must be withheld. These deductions are mandatory so there is no way to avoid these from being deducted.
Has the income limit changed for 2017? In other words, how much do I have to make before I can no longer claim exemption? I’m 17 but will turn 18 in 2 weeks. Do I still qualify for exemption? I live in ME, so do I qualify for exemption from state income taxes too? This comments section is awesome and it has answered many of my questions already, but obviously, I still have a few. Thank you for your quick and thorough responses this is tremendously helpful.
Hi Noah,
For 2016 the Federal standard deduction is $6,300 and you could also take a personal exemption of $4,050. The Maine standard deduction is $11,600. Everyone is allowed to claim the standard deduction but if your parents claim you, they could be taking your personal exemption and then you would not be able to benefit from the $4,050. If you are in school and provide more than half of your support, then most likely they will claim you.
Noah – for 2017 you can earn $6,400 before you owe taxes. So the amount a person being claimed as a dependent by their parents can earn without being subject to federal income taxes went up by $100 from 2016.
Andrew,
Would appreciate your thoughts on whether there’s a way to get a refund on my daughter’s withheld taxes, what I might be doing wrong, and how to fix things going forward…
1040s for our 21 year-old Dependent daughter in 2015 and 2016 show her owing taxes on income (earned and unearned) that is well below the filing thresholds. Unfortunately she had taxes withheld both years and 1040s show she cannot recoup withheld taxes for those years. She also does not appear eligible to claim exempt anymore on W-2s. Here are the facts:
She did NOT claim exempt on her W-2s in 2015 or 2016. I claim her as a dependent (reflected in her 1040). In 2015 she had 1408 earned and 246 unearned income (mostly qualified dividends) – well below filing thresholds. Her employer withheld 122 and the 1040 showed her owing 144 which meant she owed19 to IRS). According to my read she did not have to file a tax return that year.
The situation in 2016 is similar. She had 2835 earned income, 304 unearned income (249 of which is qualified dividends), 225 withheld, and 1040 shows 254 taxes due, therefore net 29 owed to IRS. It appears she does not have to file again this year because of the thresholds.
Thanks so much for this extremely helpful information! Katherine
Hi Andrew,
I read through most of your excellent post but could discern why my dependent college age daughter cannot get a refund of withheld taxes via 1040 (yr 2016) filing. In fact her 1040 shows she owes more than withheld. Unfortunately she did not claim exempt on her W-4. Her earned income (2835) and unearned income (304, 249 of which is qualified dividend) are both below the required filing threshold. Can you tell me if I’m doing something wrong? Thanks so much for your help.
Katherine
Hi, It seems to me that if your daughter’s wages were $2,835 and her dividends were $349 of which $249 are qualified, she should not be subject to any federal income taxes that year. I’m not sure why you are coming up with a balance due on her tax return.
Andrew – thank you so much. I found someone in my situation and compared 1040s. I had made a mistake on the standard deduction worksheet for line 40 because of a miscalculation in worksheet where I put 350 instead of 350 PLUS income. I thought I was so careful. Not so… Thanks so much again! Great post.
I have some questions about this. My daughter just turned 18 and has not been having taxes taken out since she started working. I am not sure how much she has made over the last 3 years. Should I go ahead and have her start having taxes taken out now? We claim her on our taxes. i just want to make sure we do this right.
Also we are in kansas
Hi Christy. This depends on how much your daughter will earn during 2017. If her total wages will be less than $6,400 during the calendar year, she can continue to claim Exempt on her W-4 since she would most likely owe no federal income taxes on that income. If her wages will exceed $6,400 for the year, then she should instruct her employer to begin withholding federal income taxes by completing a new W4 NOT claiming Exempt in Box 7.
Hi Andrew! I’ve read through everything and all the advice was very helpful. One question I have, though, is can an employer totally ignore your “exempt” status that you submitted on your W4 and withhold taxes anyway? My 16 year old has her first job. It is only for 6 weeks at $8.50/hr so no way will she owe taxes (no other income/unearned income). She received her first check today and I’m so annoyed that they withheld more than $60 for federal and $30 for State. I sent them an email requesting a corrected paycheck on Monday but from what you stated in other posts, they will probably not credit the withholding and now we will have to file a return for 2017. So, back to my actual question, doesn’t her employer have to honor the exempt status that she put on her W4? Can they just change her status without her consent? Thanks so much!!
Hi. I think this is a situation where the W-4 was completed correctly by the child, but the employer did not enter the info correctly into their payroll system. i would bet they just entered Single with 0 allowances instead of Exempt. You might want to call the employer on behalf of your daughter to get this straightened, but you’d probably want to get the go ahead from her first. As it stands right now, she’ll need to file a tax return in February to get back any federal and (probably) state taxes withheld. I bet your daughter will appreciate this nice windfall next winter.
We had the same issue for my daughter. She filled out her W-4 claiming exempt, and while her employer didn’t withhold any federal income taxes, they did withhold Mass taxes. She only worked there for a few weeks, so we will need to decide whether to file a Mass return for her to get back $3.50.
Hi Andrew, my name is Jenny and I just graduated from college this May. I recently started my first full-time job, and my base salary is $45k. On my W-4 form, what number should I put down on lines 5 and 7? My parents file a joint tax return and I was wondering whether I would still be considered a dependent. Thank you for your help.
Hi Jenny. Sounds like you will earn more than $6,400 this year, so you shouldn’t put anything on line 7 of the W4. For you W-4 starting next year, you probably want to go with Single – 1 allowance which should have you come close to even on your taxes next year assuming you are single and don’t own a home.
For 2017, things are a little more tricky. You might just want to start with Single – 1 allowance on your W-4, and then you should get a refund next winter when you file your 2017 taxes. Otherwise, since you are only working for half the year but will have taxes withheld each pay period as if you will work he full year, you can probably increase the allowances you are claiming on line 5 for 2017, which will reduce the taxes withheld and increase your take home pay, and reduce your refund next winter.
Just remember to file a new W-4 on 1/1/18 switching to Single – 1 allowance.
I hope this brief answer helps. Good luck at your new job!!
Can i still claim said child as a dependent when i file?
Yes, if your child is under the age of 18, or is still a full-time student for at least 5 months during the year and you provide more than half of your child’s financial support, then you would still most likely claim that child as your dependent on your tax return. If your child earns more than $6,350, he or she should make sure to check the box that he or she can be claimed as a dependent on someone else’s tax return.