ROANOKE TIMES
Copyright (c) 1996, Roanoke Times
DATE: Monday, May 27, 1996 TAG: 9605290013
SECTION: MONEY PAGE: A-6 EDITION: HOLIDAY
SOURCE: MAG POFF STAFF WRITER
Summer vacation is when many students seek summer jobs.
The good news is that vacation jobs should be easier for students to find this spring than they were a year ago.
The not as good news is that with summer jobs comes some grown-up complications - tax filings and payments.
William Mezger, a senior researcher at the Virginia Employment Commission, said 1990 through 1993 "were pretty bad years" for teen-agers seeking summer work; 1994 was a better year and 1995 was "better still."
The situation this summer appears even more promising, Mezger said, based on reports from VEC offices throughout the state that company recruiters are approaching officials for job placements.
He pointed out that jobless rates are very low - 2.4 percent of the Roanoke region work force in March, for example - while the economy is good, making room for summer applicants.
As usual, he said, students (and graduates) with computer and technical training are most in demand. Mezger said students of architecture, engineering and business will find jobs more easily than will students of liberal arts.
Wendy Funderburk, a certified public accountant with the Roanoke firm of Spencer and Associates, said students will not be liable for federal or state income tax if they earn $4,000 or less and if they have no unearned income, such as interest on bank accounts.
Those who earn less than that amount in a year don't even have to file federal or state tax returns, she said.
Under other circumstances, Funderburk said, income may exceed $4,000 but the youth will not owe any federal or state income tax because of other deductions. However, in this case, income tax returns would be required.
For example, Funderburk said, no income tax would be due - but a return would be required - if a student worker earned $6,000 and contributed $2,000 to an individual retirement account.
She said a student who meets these criteria, and who was not liable for income tax last year, may claim an exemption from withholding. But she warned that requires proper completion of the W-4 form at the time the student begins to work.
This exemption is claimed by writing "exempt" on Line 7 of Form W-4 for the federal tax and by checking the box on Line 3 of Form VA-4 for Virginia.
In many cases, she said, students meet all requirements for exemption from withholding but do not complete those forms properly.
When that happens, she said, income tax will be withheld from the student's pay. It will not be refunded until after the income tax returns are filed. That becomes the sole reason for filing the income tax returns when, with proper handling of the forms, returns need not be filed.
Funderburk also noted that payments for services rendered by a child under the age of 18 who works for his or her parent in a trade or business are not subject to Social Security or Medicare taxes.
Payments for the services of a child under the age of 21 who works for his or her parent are not subject to federal or state unemployment taxes.
These exemptions, she said, result in a tax savings for the employer-parent of 8.58 percent to 14.68 percent, depending on an employer's state unemployment tax rate, which varies for each employer. This can range from a minimum of 0.13 percent to a maximum of 6.23 percent.
The employee-child saves 7.65 percent, Funderburk said.
This exemption does not apply to services rendered by the student for a corporation. In the case of a partnership, she said, the exemption does not apply unless the parents of the child are the only partners.
From a tax-planning standpoint, Funderburk said, the parent receives a deduction for wages paid to the child, thereby reducing his or her income and self-employment tax. And if the child meets the criteria, he or she does not have to pay income taxes on the wages.
If the student's parent or legal guardian is the child's sole employer, she said, the Fair Labor Standards Act minimum age restrictions are not applicable. The exceptions are if the job is hazardous or in a manufacturing or mining occupation.
But Funderburk said the exemption from age restrictions is not applicable if the child assists the parent who, in turn, is employed by a third party.
The Virginia Society of Certified Public Accountants said there is an important exception to the withholding and filing rules.
If your child anticipates having both earned and unearned income that together exceeds $650 this year, he or she cannot be exempt from withholding and must file a return. Your child also must file a tax return if he or she is entitled to receive a refund on federal or state taxes that were withheld from wages.
Children who file their own returns may still be claimed as dependents on their parents' return if they are under age 19 or are full-time students under age 24 at the close of the calendar year, and the parents contribute more than half of their total support.
The CPAs said it makes good economic sense, as well as smart tax sense, to encourage your child to take a job. That's because children pay less in taxes than would parents who earn an equal amount of money from a sideline job.
LENGTH: Medium: 92 lines ILLUSTRATION: GRAPHIC: Chart. color.by CNB