Your Kids, Summer and Taxes

Sending kids to summer day camp
The cost of summer day camp (not overnight) may count towards the Child and Dependent Care Credit.

Children working part-time (earned income)   A child who has only earned income must file a tax return if their total earned income is over $12,950 for the year 2022.  If they will not earn more than this, make sure they tell their employers to NOT withhold State and Federal tax.  They should complete their W-4 as EXEMPT.

Children with Unearned Income (from investments, interest, dividends, etc)  If your 18 year old or under child has unearned income of over $1,150, your child must file a tax return.

Children working away from their ‘home’ state  If your child will be working away from your home state, and earns less than $12,950, they may not have to file a state return in that state.   Before they complete their W-4, please check with us.  We can advise whether they should tell their employer they are exempt from state tax.  If state taxes are withheld in the non-home state, your child will have to file a tax return in that state to recoup their refund.

Kiddie Tax  The Kiddie Tax applies to children under 19 (or full time student 19-23) who have unearned income from taxable interest, dividends, capital gains, etc.  For 2022, the first $1,150 of unearned income is tax-free.  The next $1,150 is taxed at their rate.  Anything over that is taxed at the parents’ tax rate.  Interest earned on 529 plans are not subject to the Kiddie Tax.

Hire your child   Although the Fair Standard Labor Act affects most, children of a parent-owned business are exempt (unless the business is considered hazardous).  The benefits of hiring your children are huge.  Your child can receive up to $12,950 in earned income without having to file a tax return.  This is a deduction for your business.  Your income is reduced, perhaps reducing your QBI phase-out amount, so you get a higher Qualified Business Income Deduction. Your child can begin funding their own Roth Plan, or perhaps be included in your company retirement plan.  There are ways to hire your child that provide even greater tax benefits.  We are happy to discuss these with you.

Gig work
Your child may earn summer income by providing on-demand work. Examples include ride sharing, delivery services, etc, where no tax is withheld.  If their net income (earnings after business expenses) is less than $400, no tax return is due.  This assumes other additional income (earned or unearned) does not require the filing of tax return.

Summer is right around the corner.  We wanted to share before your children head off to work!

Your Staff at CAS