Question: My teenage son worked last summer. Does he have to file an income tax return?
Answer: If your teenager earned $4,850 last year, he must file federal (and state) income tax returns. Most employers withhold money from wages for taxes, so he’ll want to file to get his money back. The standard deduction for all single filers is $4,850, so unless your son earned more than that amount, no taxes will be owed.
The 1040EZ form is a simple form designed for individuals with uncomplicated taxes. Your son can get a copy of this form at the Internal Revenue Service Web site at www.irs.gov. If he filed last year, he probably received a TeleFile booklet in the mail with directions of how to file online or by telephone. If this is the first return he is filing, have him check the IRS Web site to see if he can file online. One last thing: The fastest way to get a refund is to have it automatically deposited into a checking or savings account. Call your credit union or bank and find out the routing number. With the routing number and account number, funds will be deposited electronically.
Just as important as filing taxes is what to do with his refund. One of the most important words I know is intentional. Instead of looking at the tax refund as a source of free money, help your son think about how hard he worked to earn that money and what he might do with it.
I believe that we all need some money as fun money; otherwise, what is working all about? At the same time, learning to set aside some dollars for tomorrow is part of taking care of yourself. I imagine there are big ticket items that your son would like to have in the next several years – perhaps a car, a trip or education. Parents and grandparents are often willing to match or overmatch dollars saved by teens to reward their saving behavior. Ask your teen to write down something he would like to have in the next three years and how much it costs. Encourage him to negotiate with you or grandparents to help him get the funds he needs (assuming the goal is agreed upon by the adults). This is a great learning opportunity about lifelong money management.
One more thought. If your son has earned income, he can contribute to a Roth IRA. Five years after the date the Roth IRA is established, no tax will be owed on the IRA earnings (even as new money is deposited). This account will grow for many years and is intended for retirement savings but can be withdrawn earlier than age 59 1/2 (without penalty) for first-time home buyers, qualified higher education expenses, and in some cases, for medical expenses. This is a great benefit and lesson for your son and for all of us with earned income.
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Judy McKenna, Ph.D., CFP, Family Economics Specialist, Colorado State University Cooperative Extension, firstname.lastname@example.org, 491-5772