Whether it was selling lemonade on the sidewalk, baby-sitting for neighbors’ children, or a high-profile internship during college, we all remember our first summer job.
Summer jobs (or paid internships) are great opportunities to teach your children about money – everything from budgeting to saving. Here’s a quick reference guide of topics when it comes to your child’s first summer job.
– Withholding: Help your child sort through the paperwork that is involved with obtaining a job, including filling out the W4 form, which is the form used to determine the number of tax exemptions one should claim. Importantly, if your child is a student, he/she can claim exempt from tax withholding.
– Your own exemption: If you want to avoid having your child file an income tax return, if his/her only income is the summer salary/wages, your child can claim exempt on the W4 and avoid filing an income tax return because he/she is earning under the threshold. Please note, your child can only be exempt from federal and state withholding, not from social security and Medicare.
– Claiming dependents: you can still claim your child as a dependent as long as he/she is either a) under the age of 19 at the end of the year OR b) under the age of 24 at the end of the year and a full-time student.
– Once your child has received his/her first paycheck, it is a great time to start discussing money management, beginning with opening a bank account (checking, savings, or money market). Receiving an ATM card can prompt an important conversation about the importance of budgeting (and how much of his/her expenses he/she is responsible for paying over the summer)
– If your child is opening a savings account, it is a great opportunity for him/her to begin putting money away in an IRA (either a traditional or a Roth)
– Also, make sure to check out our post on: Funding College and Graduate School Using Qualified Education Savings Programs