When Your Child Should File
Your child should file a federal income tax return even though it isn’t required for the reasons above, if:
- Incomes taxes were withheld from earnings
- They qualify for the earned income credit
- They owe recapture taxes
- They want to open an IRA
- You want your child to gain the educational experience of filing taxes.
In the first two cases, the main reason for filing would be to obtain a refund if one is due. The others are income dependent or based on taking advantage of an opportunity to begin saving for retirement or to begin learning about personal finance.
How To Fill Out A W4 Form For A Teenager
When your teen starts a summer or part-time job, they will be required to fill out a W4 form. This lets the government know how much, if any, income to deduct for federal and state income taxes.
For the majority of teens this will be quite simple. They will just fill out the personal information section and then sign and date the form at the bottom.
Heres a more detailed walkthrough:
First, fill out the top part where it requests your personal information.
Step 2 only applies if the teenager has other income. This could be income from another job or income from investments. Most teenagers probably only have one source of income so you will most likely be able to move down to Step 3. The purpose of this section to avoid too much or too little taxes being withheld.
You can use the calculator listed in part A to calculate an approximate amount of taxes due from all sources of income. Heres that calculator. Estimate high, its better to get a return than to owe taxes in April.
Step 3 applies only if the teenager has dependents.
Step 4 is where you can ask for extra money to be withheld You may want this if you determined it was needed back in Step 2. If the teenager has no other sources of incomeor if that other income is being taxes appropriately, then this section can be skipped.
All your teen has to do for step 5 is sign and date!
Why Claim Someone As A Dependent
If you have a family, you need to know how the IRS defines dependents for income tax purposes. Why? Because it could save you thousands of dollars on your taxes. For tax years prior to 2018, every qualified dependent you claim, you reduce your taxable income by the exemption amount, equal to $4,050 in 2017. This add up to substantial savings on your tax bill.
For tax years 2018 through 2020, exemptions have been replaced by:
- an increased standard deduction
- a larger Child Tax Credit
- a bigger Additional Child Tax Credit
- as well as a new , which is worth up to $500 per qualifying dependent
For your 2021 tax return that you will prepare in 2022, the Child Tax Credit is expanded by the American Rescue Plan raising the per-child credit to $3,600 or $3,000 depending on the age of your child. The credit is also fully refundable for 2021. To get money into the hands of families faster, the IRS will be sending out advance payments of the 2021 Child Tax Credit beginning in July of 2021. For updates and more information, please visit our 2021 Child Tax Credit blog post.
Dependent rules also apply to other benefits:
- the Child and Dependent Care Credit for daycare expenses
- medical expenses, various other itemized deductions and most tax credits that involve children or family issues
Qualifying for these benefits can spell the difference between owing money and receiving a refund.
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Taxes On Young Entrepreneurs
Some teens choose to get a jump on the American Dream by starting their own business. In this case, the paperwork could potentially get pretty complicated. Small business owners will owe income tax on anything they earn above the income threshold, as well as self-employment tax, which is 15.3%, regardless of how much they make.
However, in order to determine taxable income, a young business owner will need to track income and expenses. Your teen will need to get Form Schedule C when filing the Form 1040.
Does Social Security Count As Income
Generally, if your Social Security benefits are your only source of income, then they are usually not considered taxable income and thus not taxed. If you receive Social Security benefits, you will be sent a Form SSA-1099, which will show the total dollar amount of your Social Security income for the given tax year.
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Reduce Your Income Tax Liability
If youre concerned about paying income tax after age 70, there are some things you can do to prepare. Even if it doesnt resolve your need to file altogether, you can at least reduce the amount you owe each year. If you havent already, look at areas of your budget where you can cut back in order to rely more heavily on your Social Security earnings than other income sources. But if that isnt possible, there are a few other options.
If you havent turned 70 yet, look at some things you can do ahead of that date to reduce your income tax liability. Take a look at the Social Security benefits youll be receiving and determine exactly how much youll need from other sources. Taking withdrawals from your IRA before you sign up for Social Security can help minimize that extra income after you start receiving that check, since youll already have it in the bank. If youve chosen a Roth IRA for your retirement savings, you may also be able to withdraw your funds gradually in a way that reduces your retirement liability.
What If I Didnt File A 2019 Or 2020 Tax Return And I Didnt Use The 2020 Irs Non
If you arent normally required to file taxes, use the new IRS Non-filer Portal. This tool allows you to sign up for the CTC advance payments and claim any missed stimulus checks. You will be asked to provide your information, including the number and ages of your qualifying children.
If you have a filing requirement or are eligible for other tax credits, you will need to file a 2020 tax return to get the CTC advance payments.
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What Happens If You Refuse To Pay Income Tax
Those who dont pay often face civil penalties. When Americans fail to pay their federal income taxes without reasonable cause, they may be charged a late penalty of 0.5% of the taxes owed for every month or part of the month the tax remains unpaid, up to 25% of the total amount, according to the IRS.
Filing Taxes For Teens
Even if the amount of income from your amazing 16-year-old childs job doesnt require a tax return, if a refund is coming, a return should be filed. Tax calculators are easy to find online. They can quickly tell you how much of a refund may be due. Just plug in earnings, the amount of taxes that were withheld for the year and the filing status, likely single.
If your child has unearned income only, it may be combined with yours by attaching Form 8814 to your tax return. If you do this, your child does not have to file a return. However, several requirements must be met. For starters, your child has to be younger than 19, or younger than 24 if a full-time student. Check the IRSs website for a complete list of requirements. But be aware that including your childs income on your tax return could put you in a higher tax bracket. Its a good idea to check with your tax professional to see if it makes sense for you to do this.
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What If I Share Custody Of My Child Who Will Get To Claim The 2021 Child Tax Credit And Advance Payments
Only one person whoever lives with the child for more than half the year can claim the CTC. If you claimed your child on your 2020 tax return , starting in July 2021 you should have automatically begun receiving half of the new CTC through advance payments. You will receive the rest of the CTC when you file a 2021 tax return in 2022.
If your child no longer lives with you in 2021, file a 2020 tax return, if you havent, so the IRS has your most recent information. Or, if you have already filed a 2020 tax return, update information about your child using the CTC Update Portal, when this feature is available.
If more than one parent or guardian lived with your child for more than half of the year, the person who claimed the child on the most recent tax return will be the parent who receives the advance payments. The same situation applies if you and other relatives both care for and live with the child.
The eligible parent or relative who receives the advance payments should be the same person to claim the CTC on their 2021 tax return , to receive the remaining half of the credit. If the other parent or relative claims the CTC instead, the IRS will question whether the 2021 advance payments were made improperly. The IRS may need to take additional steps to determine who can rightfully claim the child, which may delay the delivery of tax refunds.
This will allow you to receive the current CTC and possibly receive the advance payments of the 2021 CTC.
How Income Affects The Dependent Tax Return
There are two basic types of taxable income: earned and unearned.
Earned income is all of the taxable income and wages you received from working . You can get earned income by working for someone else or for yourself.
Unearned income is exactly what it sounds like income you received but didnt earn through work. Some examples of unearned income include
- Interest and dividends
- Child support
- Pay received for work while an inmate in a penitentiary
The type and amount of income a dependent has will influence whether or not theyll be required to file a tax return. And other criteria apply as well.
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Qualifying Rules If You Can Be Claimed As A Dependent
You must file a tax return for 2020 under any of the following circumstances if you’re single, someone else can claim you as a dependent, and you’re not age 65 or older or blind:
- Your unearned income was more than $1,100.
- Your earned income was more than $12,400.
- Your gross income was more than $1,100, or $350 plus your earned income up to $12,050, whichever is greater.
Married dependents who are not age 65 or older or blind are subject to these filing requirements plus one more: They must file if their gross income was at least $5, and their spouse files a separate return and itemizes deductions.
Penalties For Not Paying Your Taxes
Even if you file an extension to submit your tax return, you must pay any estimated tax you owe by April 15, 2021. If you do not pay your taxes, you will be charged a penalty and owe interest on any unpaid balance.
The penalty for failing to pay your taxes by the due date is 0.5 percent of your unpaid tax for each month or part of a month that your return is late. This penalty is capped at 25 percent of late unpaid taxes. If you file your return on time and request to pay by an installment agreement, the penalty drops to 0.25 percent for each month or part of a month of the installment agreement.
Youre also charged interest on the unpaid balance, which compounds daily. The rate is set each quarter and is based on the federal short-term rate, plus an additional 3 percent.
If you owe taxes and dont file your return on time, youll be charged a penalty for failing to file. This is usually five percent of the tax owed for each month or part of a month your return is late. This penalty is also capped at 25 percent
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Filing Taxes For Kids: Does My Child Have To File A Tax Return
Did your kids discover the joys of entrepreneurship this year, raking in the dough from lemonade stands, shoveling driveways, or walking the neighbors dogs? Or maybe generous family members gifted them with stocks and bonds instead of toys. While your child may enjoy having some money of their own, they might also get to experience a little something called paying taxes.
As dependents, your children face different rules for determining whether they need to file a federal income tax return. However, unlike adult taxpayers, children have some flexibility in choosing how to report their income.
Here are the key points you need to know when helping your children file taxes.
If I Havent Filed A Tax Return In Years Can I Still Sign Up For Ctc Advance Payments What If I Owe Taxes
Yes. Even if you havent filed a tax return recently, you can still sign up for CTC advance payments, if you are eligible. Not everyone is required to file taxes.
If you are under the income requirements to file a 2020 tax return , you can use the IRS Non-filer Portal to sign-up for advance payments.
If youre not required to file, you may want to file a 2020 tax return to get additional tax credits that you may be eligible for, such as the Earned Income Tax Credit . There is no penalty for not filing in the past if you dont owe taxes. If you want to claim other tax credits, then you cannot use the Non-filer Portal and will need to file a regular tax return.
If you havent filed a tax return for this year or previous years, and you think you may owe taxes, refer to Filing Past Due Tax Returns on the IRS website to learn what to do.
You may be subject to penalties and fines for not filing or not paying taxes. However, you can request penalty relief. If you owe taxes and cant pay them in full, it is important to pay what you can and make a plan. Consider using a payment plan. Note that if you dont pay the amount owed in full, you will be charged interest and penalties.
To learn more about your different payment options based on your financial situation, read What to Do if I Owe Taxes but Cant Pay Them.
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Tax Credit For Seniors
Even if you must file a tax return, there are ways you can reduce the amount of tax you have to pay on your taxable income. As long as you are at least 65 years old and your income from sources other than Social Security is not high, then the tax credit for the elderly or disabled can reduce your tax bill on a dollar-for-dollar basis.
Remember, with TurboTax, we’ll ask you simple questions about your life and help you fill out all the right tax forms. Whether you have a simple or complex tax situation, we’ve got you covered. Feel confident doing your own taxes.
Income Requirements For Filing A Tax Return
Your first consideration is how much do I have to make to file taxes?. If your gross income for 2020 is above the thresholds for your age and filing status, you must file a federal tax return next year. See the table below.
In addition to federal taxes, you may also have to pay state taxes. Currently, seven states dont tax income at all, while two other states only tax investment income. You can find out if you owe state income taxes by going to your states revenue, finance or taxation offices website. The IRS also has a link to every states tax office.
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Filing For Educational Purposes
Filing income taxes can teach children how the U.S. tax system works while helping them create sound filing habits for later in life. In some cases, it also can help children start saving money or earning benefits for the future as noted above.
Even if your child doesn’t qualify for a refund, wants to earn Social Security credits, or opens a retirement account, learning how the tax system works is important enough to justify the effort.
What Is The Child Tax Credit Update Portal Used For
The IRS Child Tax Credit Update Portal allows you to opt out of advance CTC payments. You may want to do this if you arent eligible for the advance payments or if you prefer to receive the full refund when you file your 2021 tax return . See Question 17 to understand more about opting out of payments. You can also add or change bank account information to get direct deposit or change the address where your payments are mailed.
Later in the year, the CTC portal will allow you to make other updates, including updating the number of dependents you have, your income, or your marital status. For example, if you have or will have a new baby this year, you will be able to update your number of qualifying children on the CTC portal. Life changes can affect the amount of CTC you are eligible for. Making updates will help make sure that the IRS is sending you the correct amount of your CTC.
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