Exempt or 0 allowances on W4?

[Nina3]

Hi, 

My daughter who is still 6 must complete a W4 form for her employer. Somewhere on the internet, I read that for a working minor like her to write down EXEMPT on line 7 is better in the future because then she will have the money sooner and it will make things easier for the parents who claim the child also. I am not understanding this. She is a minor and my husband and I will claim her just like in the previous year. What would be the reason to write down EXEMPT instead of claiming 0 allowances on her W4? 

My husband and I, usually, file married filing jointly. What will happen when we file a tax refund and claim her if we put EXEMPT on her W4 and or 0 allowances?

Help, we need to submit the form today. Thanks!

[DoninGA · Accepted solution]

The amount of withholding or claiming Exempt on a W-4 has absolutely no effect on whether you can claim a dependent on your tax return.  It only effects the amount of taxes that are withheld for the income received.  See IRS Form W-4 - http://www.irs.gov/pub/irs-pdf/fw4.pdf

From IRS Form W-4 (2014) - Note. If another person can claim you as a dependent on his or her tax return, you cannot claim exemption from withholding if your income exceeds $1,000 and includes more than $350 of unearned income (for example, interest and dividends)

Since your child is under the age of 19 and will be receiving earned income assuming being reported on a W-2, she will not have to file a tax return if the income is less than $6,150 in 2014.  If over $6,150 then she would have file a return and indicate on the return that she can be claimed as a dependent on someone else's return.  Also, you do not report the dependents earned income on your tax return, either from wages reported on a W-2 or from self employment that may be reported on a 1099-MISC.

[Alexander2]

[remove juvenile profanity]

[SteamTrain]

As an additional thought:

What you claim on her W-4 really depends on how much income she is expected to have from that job, and you have not indicated that. The nature of jobs that a 6-year old could have might be fairly minor $$-wise, but for child models and actresses, their pay could be substantial.  So pay attention to the limits that DoninGA noted.

Claiming "Exempt" on the W-4, usually means that the employer will withhold no Income taxes (though if the child is expected to earn a lot..that "exempt" claim might not be allowed).  As long as she only earns $6150 or less during the year (from that job and all other income she might have for the year), you should be OK. 

But if she earns considerably more than that, and you used the "Exempt" designation, then when you file her income tax return at tax time, then you would need to send $$ in to the IRS. That amount would be fairly minor if she earned less than $10,000 during the year, but you would have to send the IRS some $$ at tax time

Putting a "zero" in for allowances on the W-4, would mean that the employer would withhold income taxes at the highest level.  And then, for that situation, even if she earns less than 6150,  you would need to file a tax return for her...but only if you wanted to get the tax withholding refunded.