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Kids and Taxes – What You Need to Know

September 08, 2017

As summer comes to an end, many kids/grandchildren/nieces and nephews are finishing up their summer jobs and heading back to school. Many will continue to work in some capacity throughout the school year.During this past tax season, I noticed most working kids mistakenly had federal and state income taxes withheld from their wages. My two nephews, both of whom had earned income of less than $2,000, had over $200 in income taxes withheld. When is a child REQUIRED to file a tax return?

  • Unearned income was more than $1,050
  • Earned income was more than $6,300
  • The child owes any taxes, including Social Security and Medicare taxes
  • The child had net self-employment income of $400 or more

The IRS wants to help parents of working children avoid the headaches and costs of preparing tax returns for kids who won’t earn enough to be taxed. The solution is simple. The working child should write the word “Exempt” in Box 7 of form W-4 which is generally completed on the first day of employment.


When selecting EXEMPT on the W-4, Social Security and Medicare will still be deducted from your child’s earnings. These funds will be credited to his/her account and the child will begin to have a work history. If you are not sure how much your child will earn, it’s advisable not to use “Exempt”. It’s better to have income tax withheld and file a return to get a tax refund than to pay taxes (and possibly penalties) later.

Whether you have a child, grandchild or in my case two nephews who receive a paycheck, have a discussion about the amount of income they anticipate earning for the year. If it’s less than the threshold, help educate and provide guidance on how to properly complete a W-4. Your working child will have more money to spend sooner, since no federal and state income tax will be withheld from their wages. More importantly, you will avoid preparing a tax return unnecessarily or paying a CPA/tax preparer $150+ so that your child can recoup the couple of hundred dollars that wasn’t supposed to be withheld in the first place.