Preparing Form W-4 for Dependents
By Manjot Kaur & Emily Irving
What is Form W-4?
As your child starts their new part time job, they will be asked by their employer to complete Form W-4. Their employer will use the information filled out on Form W-4, Employee’s Withholding Allowance Certificate to determine how much money to withhold from their wages. When he/she receives their first paycheck, they will notice that money has been taken out of their pay to cover any taxes that they owe. Withholding from their pay will include federal income taxes, Social Security and Medicare taxes, and state/local income taxes (if applicable).
After filing your dependent’s tax return, you may see that they get all federal and state income taxes that were withheld from their wages refunded to them. That’s awesome! But, did they really need to have federal and state income taxes withheld from their pay to begin with?
Does my child need to have their taxes withheld?
Before your dependent fills out Form W-4, check to see if they are exempt from federal income tax withholding. If they are able to claim “exemption from withholding”, their employer will not withhold any federal income tax from their wages. However, they still may have to file a tax return, even if they are exempt from withholding.
The IRS states that a taxpayer can claim exemption from withholding for 2017 only if both of the following situations apply:
- For 2016, the taxpayer had a right to a refund of all federal income tax withheld because they had no tax liability.
- For 2017, the taxpayer expects a refund of all federal income tax withheld because you expect to have no tax liability.
Your child’s status as a full time student does not necessarily mean they are automatically exempt from federal income tax withholding. Assuming they work part time or only during the summer, they may qualify for exemption from withholding. The factors to determine if any tax will be owed or if a tax return needs to be filed for U.S. citizens or U.S. residents include:
- The amount of earned and unearned income
- Whether the taxpayer can be claimed as a dependent on another person’s tax return
- The filing status, and
- Taxpayer’s age
The following chart can be used to assist in deciding whether a taxpayer can claim an exemption from federal withholding on their Form W-4:
Note that the exemption applies only to federal income tax, not to Social Security or Medicare tax withholding.
Per the Form W-4 instructions, if your child is exempt from federal withholding, they will only complete lines 1,2,3,4, and 7 of Form W-4. Please also keep in mind that the exemption is only good for one year, which is why it is important to fill out a new W-4 each year a taxpayer is exempt. If a taxpayer can claim an exemption, but later there are personal or financial changes and the taxpayer ends up owing federal income tax, they must file a new Form W-4 within 10 days of the change.
Does my child need to file a tax return?
If required to file, your child will most likely file their 2016/2017 income tax returns with the filing status “Single.” The IRS has set tax return filing thresholds that state the maximum amount of gross income an individual can have before they’re required to file a tax return. If your dependent’s filing status is Single in 2016 and their earned income exceeds $6,300, then they must file a tax return for 2016.
Keep in mind that even if a dependent’s earned income does not exceed $6,300 in 2016, they still need to file a return if their unearned income is over $1,050.