Today I had the opportunity to teach a class of high school students about various tax forms, whether they should file a tax return, and some general principles for dependents of other taxpayers. It was a great group, and I had a lot of fun. Of course, I’m a tax geek. So teaching about tax issues is always fun for me.
Probably the two most important questions we went over were 1. do I need to file, and 2. what should I put on my W-4 for number of exemptions. Once you figure out if you’ll have to file, the answer to the second question is pretty easy. Let me answer the second question first:
Your W-4 helps employers determine how much taxes to withhold from your paycheck so you don’t owe at the end of the year. Even if you are someone else’s dependent, you may owe taxes at the end of the year and be required to file a separate tax return.
If you can be claimed as someone else’s child dependent, in most cases you have one of three options. Your options are to enter one exemption, no exemptions, or simply to put “exempt” on your W-4. Here are the simple rules of thumb for child dependents:
If you owed no taxes last year, and you don’t anticipate owing any federal income taxes this year (see filing requirements below), then you can put exempt.
If you will have to file but only work one job all year, put “1” for exemptions.
If you will have to file and will work more than one job, put “0” for exemptions on form W-4.
Also, you can file a new W-4 with your employer to change your number of exemptions at any time.
So, are you required to file a tax return as a single child dependent? In some cases, yes. Here are five main reasons you may need to file a return as a child dependent:
1. You have $6,100 in earned income, typically reported on a W-2 form from your employer, and no unearned income. Unearned income could be interest, dividends, passive activities, etc.
2. You have self-employment income of $400 or more, typically reported on form 1099-Misc.
3. You have $1,000 in unearned income and no earned income.
4. You have a combination of earned income and unearned income where the total amount is more than $350 plus your earned income (up to $5750). That’s a bit more confusing. Here are a couple examples:
Jane has earned income of $5,000 and unearned income of $400. Her total income is $5,400. The filing requirement is her earned income ($5,000) plus $350, or $5,350. She has to file.
John has earned income of $5,800 plus unearned income of $250. His total income is $6,050. His filing threshold is earned income up to $5,750 plus $350, or $6,100. He does not have to file.
Fred on the other hand decides to quit his job less than an hour into his first day and only has $5 of earned income. But his parents have been saving lots of money for him and he has $351 in unearned income. His total income is $356. His filing threshold is $5 in earned income plus $350, or $355. Fred must file.
5. Lastly, as a child dependent you may want to file your tax return if you paid in more than you owe. Even if you don’t meet the filing thresholds, if you had federal tax withheld you can get that money back by filing a tax return and claiming a refund. That return can often be filed for free through various online vendors such as taxact.com, or you can often fill out a one page 1040-EZ.
One final very very very very important point. If you are a child dependent, you need to indicate that someone else is claiming you on their tax return. This is typically a box to check on Form 1040-EZ, line 5. Most tax preparation software will ask you that question as well.