Dear Tax Talk,
My 16-year-old daughter has a part-time job and earns less than $5,000 per year. She did not claim exempt, and federal and state taxes are withheld from her paycheck. Can she file a return to receive a refund for the taxes withheld? I currently claim her on my tax return. Please advise.
Generally a person isn't required to file a tax return if his or her income is less than a certain amount. The filing threshold depends on the type of income, filing status, age and whether or not they are a dependent of another person.
Even though there isn't a requirement to file, you must file a return if you want to get any money back from taxes withheld. You must file a return within three tax years to avoid forfeiting any refund due you. This means that by April 15, 2009, you can only claim a refund for 2006 to 2008. Generally there is no penalty for late filing a tax return that results in a refund.
The amounts a child earns by performing services are his or her gross income. This is true even if under local law the child's parents have the right to the earnings and may actually have received them. If the child does not pay the tax due on this income, the parent is liable for the tax.
This means that your daughter would be required to file a separate tax return (Form 1040 series) for her W-2 earnings. The income of a child does not get added to the income of the parent claiming the dependency exemption.
Generally, a child can earn up to the amount of the standard deduction for an unmarried individual for the year without owing any federal income tax. State rules vary by state. When the law uses the term "earned," it refers to income from performing services. Although a person earns interest and dividends, this is considered unearned income under the law. The threshold for filing on unearned income is substantially lower.
In 2008, the federal standard deduction is $5,450. Therefore, your daughter should complete a Form 1040 and applicable state income tax return to determine if she is due any refund. If she is owed a refund, the return should be filed in a timely fashion to claim it, even though it is not otherwise required.