We were told that our son could claim exempt on Federal taxes if he earns less that $10,500 in 2017. He earned $6500 but was claimed as a dependent on our (parents) tax return. Can he simply file state return to get his withholdings back or does he need to file both Federal and State returns
Sorry you were told wrong. For a dependent the amount isn’t 10,500 but only 6,350. He owes tax on the amount over 6,350.
MY DEPENDENT HAD A JOB
If your dependent has a W-2 for his after-school job, summer job, etc. you do not include the information on your own return. You can still claim your child as a dependent on your own return. He/she can file his own return for a refund of some of his withheld wages (he won’t get back anything for Social Security or Medicare), but MUST indicate on it that he can be claimed as a dependent on someone else’s return. (Supervise this closely or prepare it for him!)
If your dependent’s earnings were over $400 and were reported on a 1099Misc then he must file a return and pay self-employment tax for Social Security and Medicare. You may want to use this version of TT for that:
https://turbotax.intuit.com/taxfreedom/
Actually since you will be claiming him as a dependent, he does not get his own personal exemption, so his wages over $6350 are taxable income. If he continues to work, he should not claim to be "exempt". He could just claim "1" or "0" and then he might get a small refund.