Teens and taxes. Dollars and Sense Show #12

Does your teenager owe taxes? Carol Topp, the Homeschool CPA, discusses taxes and teenagers on the Dollars and Sense Show podcast.

DollarsandSenseShow12

In this episode of the Dollars and Sense Show host Carol Topp discusses taxes and teenagers.

Listen to the show here

Show Notes:

 A teenager files their own tax return!  Do NOT add your child’s income to your tax return.

You can still claim your teenager as your dependent. They check a box stating they are claimed as a dependent on your tax return.

Major taxes affecting teenagers: earned income, unearned income, and self-employment tax.

 Earned Income from a job or micro business (including babysitting). Federal income tax is owed if earned income is more than $6,100 (in 2013)

 Unearned Income: interest, dividends, capital gains on taxable accounts in the student’s name. Federal income tax is owed if unearned income is more than $1,000. Between $1,00 and $2,00 unearned income is taxed at child’s tax rate. More than $2,000 unearned income is taxed at parent’s rate  on Form 8615 (“Kiddie tax”)

Self-Employment Tax

Same as Social Security and Medicare for self-employed people. 15.3% of profit over $400. Unadjusted since 1954 (adjusted would be $6,250). Schedule SE attached to Form 1040. Reported on Line 56 under Other Taxes on back of Form 1040. (the “hidden” tax)

Example: $5,000 profit earned by single teenager. Income tax $0. SE tax $706!

If you’d like to see this changed, visit MicroBusinessForTeens.com/eliminate-tax-on-teen-entrepreneurs for a position paper you can share with your congressman.

 Exception to SE tax for teenage Household Employee: Students under age 18 working in or around an individual’s home is a household employee are not subject to SE tax. Report wages on Form 1040 Line 7 with “HSH” as note. Examples: babysitting, lawn care, house cleaner

 Teenagers scammed: Treated as independent contractor instead of employee.
Signs: Paycheck with no SS/Medicare withheld. Paid in cash. 1099MISC not W-2.
Action: Complain to employer. File complaint with IRS (Form SS-8) and Form 8919 to pay half SS/Medicare.

Resources

Teens and Taxes ebook by Carol Topp, CPA available at TeensandTaxes.com
Money and Taxes in a Micro Business by Carol Topp, CPA available at MicroBusinessForTeens.com
IRS Understanding Taxes website https://apps.irs.gov/app/UnderstandingTaxes

 

Tune in for the next Dollars and Sense show on March 27, 2014 when Carol will discuss 5 Money Myths that homeschool moms believe.

 

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