Facts: They get a Form W-2 and have no idea what to do. As a proud parent, you file a simple return for them to get the minimal withholding tax.
Action: DON’T’ prepare return until you look at the various tax rules.
Considerations: Be aware of the multiple touchpoints before filing your return and theirs. Tax brackets, phase in and levels vary based on the tax items involved.
- Child credit,
- Education credits,
- Kiddie tax, and
- Retirement contributions.
Child credit: Up to $3,000 for children under 18, claimed as dependents, and with parent income limits.
Education credit: Limited to those who claim the personal exemption or dependent exemption. Income limits for the student or parents apply.
Kiddie Tax: For a child with under age 24, their tax is based upon the combined family income. Unfortunately, this includes all income from siblings. Proud parents can’t file returns for one. It is a combined tax calculation.
Retirement contributions: As a proud parent, build for their futures. You can make a deductible IRA contribution or a nondeductible Roth contribution equal to their earned income.
We are here for you and your family. To build wealth and financial understanding, your children should be involved in the process. Please call us for any questions.
The HoganTaylor Tax Practice
If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Tax practice, please email Tony Otto, Tax Practice Lead, at jotto@hogantaylor.com. You may also contact Denise Felber, Tax Partner, at dfelber@hogantaylor.com
INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.
