Are your teenage kids earning some spending cash and saving for college by taking up part-time and summer jobs? If this is the case, then it is a high time you started instilling some important money management skills. As you prepare the youngsters for the working world, try to teach them the following very essential facts:
New employees are required to give their employers signed Form W-4. The employer uses the form to establish the value of state income tax and IRS withholding one would like deducted from the paycheck. If the child’s total yearly wages are estimated to be below $5,950, let him or her write “EXEMPT” on line 7 or 1 on line 5 if not.
Most people assume that working students and children are automatically tax exempted, and neither are they eligible to any special allowances and deductions. There is no special treatment accorded to working children by the IRS as they are subjected to similar payroll taxes, just as the adults but those under 18 are spared Medicare and Social Security withholdings when they are working for parents’ business.
Here are some deductions that teens should expect from their paychecks:
Federal Government or IRS Deductions
1. Medi=Medicare: Covers your Medicare when you become permanently disabled or turn 65, takes 1.45% of all earned wages.
2. SS=Social Security: Recorded in your Social Security account. You can access the benefits upon retirement or permanent disability, was 4.2% of wages in 2012.
3. FWT/FIT=Federal Income Tax Withheld: Covers federal income taxes. The amount is dependent on exemptions listed on Form W-4 and you can have some back as refunds if you file your returns.
SIT=State Income Tax Withheld: Depends on the exemptions listed on Form W-4 and covers state income taxes. Can get some back as refunds if you file your return.
SDI/DI-State Disability Insurance: In the event that you get hurt or rendered incapable of working, you can file a claim and get disability income.
There are numerous other deductions that you should expect when working. Some are listed below;
• Union dues: For memberships to unions
• Reimbursements: If you pay for tools/supplies at work
• Health insurance: Can be ignored if the child is covered by parent’s plan
• Retirement plan contributions
Some deductions like workers compensation and FUTA-= Federal Unemployment taxes should be paid by the employer. It is important that you explain these fundamentals to your teenage daughter or son using a typical paystub. Clarify any murky areas to ensure that they do understand.