Students – Don’t be in such a hurry to file your return that you cost your parents!
Students that work part-time jobs often have more tax withheld from their paychecks than the actual tax assessed when they file their return. They are then, understandably, in a hurry to file their return to get some spending money from their refund.
However, if they don’t fill their return out correctly and claim a personal exemption for themselves, their parents won’t be able to claim them. The parents often, not knowing the consequences of their student filing their return in January or February, rightfully claim the student as a dependent. Since this results in both parent and student claiming the same person (and SSN), the parents return is adjusted so that they don’t get credit for the refund. This could cost the parent approximately $1,500 to $2,000 depending on their tax bracket. Amended returns for both parent and student can be prepared but this is costly and no one wants to file amended returns if they don’t have to.
A better solution is to make sure the student holds off in filing their return until the parents file their own return or at least have a professional tax preparer determine that it is ok for the student to file.
Contact us for more information.
Students that work part-time jobs often don’t earn enough to require filing a tax return but still have federal and state income taxes withheld from their paychecks. This can present a situation where they have to file a tax return just to get their money back. Often the cost of paying someone to prepare their return is more than they might get refunded so they don’t file a return at all (which is legal to do).
A better solution is to elect not to have any taxes (other than social security and Medicare which are not optional) withheld from their pay.
To make this election, request form W-4 from your employer for federal taxes and write EXEMPT in box 7. In order to be eligible to be EXEMPT from withholding, you basically must not have had any taxes owed the prior year and do not expect to have any taxes due for the current year.
For Georgia taxes, request form G-4 from your employer and read instructions on page 2 of the form and if eligible, check the box on line 8.
Of course, if it turns out that the student earned more than anticipated, a return might have to be filed and it is possible some taxes would be due. However, if that doesn’t happen the student will be able to keep all of their hard earned money and will not have to file a tax return JUST to get back income taxes that were withheld.
For more information please contact us.