School's out, so there's a good chance your kids are on their way to summer jobs. They're saving up so they can download music, see movies, go out to eat—maybe even (gasp!) save for college. But Uncle Sam wants his cut, too. So, what rules apply to these low-income, short-term jobs? Veterinary Economics Editorial Advisory Board member Gary I. Glassman, CPA, a partner with Burzenski & Co. PC in East Haven, Conn., gives clients the lowdown on the tax ramifications of kids' summer jobs.
Q: Does my child need to file a return?
A: If a kid earns up to $5,450 in wages in 2008, he or she doesn't have to file a federal tax return. But that's only if income from self-employment, tips, interest, dividends, and stock sales don't boost that number above the minimum. Also, if your child overpays taxes, the only way or she can get some back is to file a tax return.
Q: Can my child open an IRA?
A: A child can contribute up to $5,000 or his or her earnings, whichever is lower, to a traditional or Roth IRA.
Q: Are there tax breaks if my child works for me?
A: You can deduct your child's wages if you're a sole proprietorship or family partnership. If your child is under 18, you still pay income taxes but not Social Security, Medicare, or federal unemployment taxes.
This information is courtesy of Burzenski & Co.'s client newsletter.