Tax on earnings of a College Junior

[main0stage]

My kid is a junior at college and just got an offer to work for a small company. The prospective employer has asked if he would like to receive 1099 or work as a part-time employee.

We have always claimed our kid as a dependent in our tax returns, even though he lives in a different city within the same state. It is not known how much he will earn total in 2022 since during the school year he may work as little as 8 hours a week.

I understand there are different tax implications depending on how he choses to get paid. i.e. 1099 or as a part-time employee. If he joins as a part-time employee, then the employer will automatically withhold taxes.  Can someone share the wisdom of tax scenarios in both the cases when the income is under 12,400 or above (which i think is a threshold to file tax return). Will i still be able to claim him as dependent since i provide around 30k each year for tuition, room/board etc. thank you

[Bsch4477]

Assuming he is a full time student and doesn’t provide more than half of his support you can continue to claim him. Note that it is not relevant how much he earns, but rather whether he uses those earnings to provide more than half of his support. 

if he gets a 1099 and earns more than $400 he has to file a return and he is considered a business and pays about 15.3% of net income for self employment tax as well as any income tax liability he might have.  The benefit of being self employed is that he can deduct expenses from income. If he has no expenses he would be better off being an employee. 

[main0stage]

Dear BSCH4477; one follow-up question. If he goes in as an employee, can he submit W4 to the employer... in a way that no taxes are withheld? My concern is that, if the taxes are withheld as an employee, and if his earnings are below taxable bar, then he has no method to request refund of 'withheld tax amount' -without having to file tax returns.

I would prefer him not to have file tax return, so i may continue to claim him as a dependent. thank you

[xmasbaby0]

You would still be able to claim your college student as a dependent even if he files a tax return of his own.   All he has to do on his own return is say that he can be claimed as a dependent on someone else's tax return.

If he works as a W-2 employee he can file a tax return to seek refunds for amounts in box 2 for federal tax withheld and/or box 17 for state tax withheld.   He does not get a refund of anything withheld for Social Security or Medicare.

And....if he works as an independent contractor he is required to file a tax return if he makes over $400.   He would have to say he can be claimed as someone else's dependent then too.  But he would PAY self-employment tax for Social Security and Medicare since those would not be withheld from his paycheck.

[xmasbaby0]

WHO CAN I CLAIM AS A DEPENDENT?

You can claim a child, relative, friend, or fiancé (etc.) as a dependent on your 2021 taxes as long as they meet the following requirements:

Qualifying child

• They're related to you.
• They aren't claimed as a dependent by someone else.
• They're a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.
• They aren’t filing a joint return with their spouse.
• They're under the age of 19 (or 24 for full-time students).
• No age limit for permanently and totally disabled children.
• They lived with you for more than half the year (exceptions apply).
• They didn't provide more than half of their own support for the year.

Qualifying relative

• They don't have to be related to you (despite the name).
• They aren't claimed as a dependent by someone else.
• They're a U.S. citizen, resident alien, national, or a Canadian or Mexican resident.
• They aren’t filing a joint return with their spouse.
• They lived with you the entire year (exceptions apply).
• They made less than $4,350 in 2021.
• You provided more than half of their financial support.

When you add someone as a dependent, we'll ask a series of questions to make sure you can claim them. There may be other tax benefits you can get when you claim a dependent.

[Bsch4477 · Accepted solution]

1.  As mentioned, his filing a return has nothing to do with you claiming him. 

2. To claim exempt, write EXEMPT under line 4c. You may claim EXEMPT from withholding if: Last  year you had a right to a full refund of All federal tax income and this year  you expect a full refund of ALL federal income tax. You may also claim exempt if you have never filed a return before.