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With the deadline to file tax returns three months out, and what accountants refer to as “busy season” more than a month away, you may be wondering why we chose now to discuss tax returns.
No, it’s not to stress you out. In fact, it’s quite the opposite.
A little preparation now will go a long way in making your life easier come busy season — especially if your teenager recently entered the workforce in 2015 with a summer or part-time job.
There are several somewhat confusing rules that will determine whether or not your teen needs to file a tax return, so let’s start with the basics.
Is your teen a dependent?
Your child is your dependent if the child lived with you for more than half the year, did not provide more than half of their own support, and they were under 19 years old on Dec. 31. A child under 24 years old who isa full-time student or a child of any age who is permanently disabled may also be a dependent. In most cases, if your teen is a dependent they will not be required to file a tax return. But there are exceptions.
How much did your teen earn this past year?
Even as a dependent, your teen may have to file taxes depending on their yearly earnings. For instance, if their earned income is more than the standard deduction, then they must file. Standard deduction amounts can fluctuate from year to year, so check with the IRS for the most accurate figure.
Alternatively, if your teen has unearned income from dividends, investment gains, or interest that totals more than $1,050, they will be required to file a tax return. (Again, consult the IRS for accurate figures)
Lastly, your teen will need to file a return if the combined values from earned and unearned income for the year totals more than the larger of $1,050 or if their earned income exceeds $5,950 plus $350.
This last part is by no means simple to understand, so it may be best to let a tax professional do the math if your teen has both earned and unearned income for the year. A tax professional can also determine if your teen was hired as a contractor rather than a “regular” W-2 employee and what that means in terms of either owing or receiving money from the government.
Learning financial literacy is fun with the H&R Block Budget Challenge. To find out more about how your teenagers or students can learn real-world money management skills without the real-world consequences, encourage teachers to register here for the next H&R Block Budget Challenge simulation.