It’s summer time already that means school vacations, child care and self employed teens. There are 2 summer events parents need to think about. That is childcare for your little ones and what teenagers need to do. These tips will help you manage the summer finances a little easier for you as parents. This article will also explain what teens who earn money from a summer job should do.
Who’s Watching the Kids this Summer?
Have you figured out what to do with the kids while they are out of school and you are at work? There are possibilities that may qualify you for a break in the form of a tax credit that can help offset the cost of care for children. Take note that not all summertime care solutions may qualify for the tax credit. So, here is some information that will help you understand how the IRS determines a credit, what kinds of childcare qualifies, along with possible limitations.
Child Care Credit Percentage
There is a good chance, you may send your child to summer camp. Or, you may hire a sitter, or send your little one to daycare. When a child is under 13 years old, or has a qualifying disability, you may qualify for a tax credit up to 35% on expenses up to $3,000 for one dependent and $6,000 for 2 more more.
Are you a working parent who needs a tax break?
This tax credit is especially for you, the working parent, who has childcare expenses. This tax credit fluactuates, and depends on your earned income. It also takes into account what expenses you paid for childcare. Here is how it works, basically, it will reduce the amount of federal taxes you will owe to the IRS. The good news, whatever money you save on your income taxes, you can invest that in the expenses to adequately raise your child.
How do I qualify for the child and dependent care credit?
Here is a list of several areas you (or you and your spouse) have to meet in order to qualify for the child and dependent care credit:
- The child or dependent must be under 13 years of age. The other exception is the child has a qualifying disability.
- You have to earn an income for the year you apply for the tax credit.
- The child care provider cannot be the child’s parent, a sibling or dependent, nor your spouse.
- You must be the custodial parent or primary caretaker for the dependent.
- You must use the childcare service specifically so you can work or look for a job.
- You must file as head of household, married filing jointly or head of house, filing fingle. You may also qualify as widow(er) with a child you are caring for, who qualifies according to the IRS.
What expenses qualify for the dependent care or child care credit?
Daycare expenses are not the only expenses that qualify, according to the IRS. Other dependent care expenses include: babysitting, housekeeper, maid or cleaning person who includes childcare as part of their service. How is that for getting a bang out of your buck! You can get your house cleaned, errands run and childcare all in one!
Today, just about every activity has a summer camp available. Summer Camp or Day Camp is another qualifying expense with the IRS. These camps can be a sports camp, music camp, art camp, etc. However, take note, overnight camps do not qualify. Turtoring does not qualify for the child tax credit either.
Do you have a teenager who works during the summer?
It’s summertime and you have a teenager or student who wants to make some money from a summer job, why not? Even though overnight camps don’t qualify for the child tax credit; your teen can still work at one for some summer income. Or, what about working at the local summer shack? The point is, the IRS has some great tips to share about summer jobs, taxes and teens.
Do Employers withhold payroll taxes from my working teen’s paycheck?
Teens, welcome to adulating! We know, it sucks, but it will happen, and you might as well understand what the IRS expects of you and taxes. Not all the money you earn will end up in your pocket to spend. In fact, new employee, including students will have to fill out a Form 2-4, Employee’s Withholding Allowance Certificate. This form will tell your employer how to calculate according to what you authorize them to withhold from your paycheck as a new employee. Just know that regardless of the summer job, your teen is responsible to have payroll taxes withheld. These payroll taxes include Social Security and Medicare taxes from their paycheck. This is the fact even for a teen who is self-employed.
So, you’re a self-employed student?
Congratulations, the economy needs entrepreneurs, and the IRS has a rule for you too! Odd jobs, such as mowing lawns, childcare, photography or a golf caddy. Whenever you earn money, you can bet the IRS expects you to report it. All self-employment income is taxable, and even self employed teens and students are responsible to report it to the IRS. So, when you earn anything over $600 from all odd jobs over the summer, plan to file it with the IRS. Rather than be taken by surprise during the next tax season that you owe money to the IRS or your state, we suggest you make quarterly estimated payments. Yup, the IRS wants you to know that Medicare and Social Security taxes may still be due and paid by the student.
Did you make tips over summer break?
Great job! Self employed teens may make tips over summer vacation. And, yes, you also must report the income. Waiters, waitresses, golf caddys, any job you earn tips, you must report that too, except to your employer. Remember we said, welcome to adulting? We suggest you keep a daily log of how much you earn in tips. During the month, any tips you earn that equal over $20, you must report that to your employer.
My student is in the ROTC Program and earns income.
Any activities your student earns income from the Reserve Officers’ Training Corps, the ROTC student’s income is taxable, except for food and lodging. The IRS has a Armed Forces’ Tax Guide to help you understand more.
Questions About Child Care, Self Employed Teens and School Vacation?
When you have questions regarding any tax law, I encourage you to give me a call. I’m Alex Franch, BS EA. Even though tax season is over, extensions still need to be filed with the IRS. Set up an appointment today! We offer many client discounts to save you money.
Alex Franch, BS EA
Alex is a Tax Specialist and Partner at Joseph Cahill & Associates / WorthTax. He has a diverse background including a Bachelor of Science from Boston College in Mathematics and extensive military service. Alex is an Enrolled Agent and has a decade of tax preparation experience. He is passionate about serving businesses with tax and financial planning strategies. Mr. Franch is licensed by the Financial Industry Regulatory Authority (FINRA). He holds a Series 6, 63, 65, and 7, and by the Commonwealth of Massachusetts Division of Insurance. Alex Franch is a registered representative of, and offers securities and investment advisory services through, Commonwealth Financial Network. He is a registered broker-dealer, Member FINRA/SIPC.