June 29, 2015

Proper withholding on your child’s W-4 can help prevent unnecessary tax return filing in 2015.

If your children are normal high school or college students, they don’t have brokerage accounts set up in their names generating unearned income. In that case, they probably want to find jobs this summer. How should they fill out their W-4 forms for the summer jobs?

If they want to claim exemption from federal income tax withholding, they have to meet two requirements:

1. They received all of the federal income tax withheld in 2014 as a refund because they didn’t have any federal income tax liability.

2. They don’t expect to have federal income tax liability for the 2015 tax year.

If they meet these requirements, they can claim the exemption on their W-4 forms. This means that their employers will not withhold any federal income tax on their behalf. Employers are still required to withhold Social Security and Medicare tax at the applicable rates.

At the end of the year, each student will receive a W-2 form from the employer. The W-2 form will list all of the wages earned for 2015, along with the applicable amount of Social Security and Medicare taxes that were withheld. If state income taxes were withheld, it will list those as well.

A single student can earn up to $6,300 without generating a federal income tax liability. It is in students’ best interest to claim exemption when filling out their W-4 forms. Therefore, if they earn $6,300 or under during the year, they don’t need to file a 1040 return just to receive a refund of overpaid federal income taxes.

The advantage of claiming exemption is that you will not have to file a Form 1040 return for each of your dependent students to receive a refund because no federal income taxes would have been withheld.

What happens in a lot of cases is that students do not properly fill out their W-4 forms before starting their summer jobs, and then they needlessly have federal income taxes withheld from their wages. The only way to have these taxes returned is by filing a 1040 return at the end of the year and requesting a refund of the overpaid federal income taxes.

Most CPA firms and tax services charge a fee to prepare your child’s return. You can save the fee that would be charged to have the returns prepared and avoid the hassle of gathering up the tax documents needed to prepare each return.

This article was originally posted on June 29, 2015 and the information may no longer be current. For questions, please contact GRF CPAs & Advisors at marketing@grfcpa.com.