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Anne Powelson Anne Powelson
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Summer jobs withhold or not?

May 12, 2015
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Looking for a summer job? I hope you find one! If you do, you'll be asked to complete form W-4 requesting how much withholding you want from your income. How should you fill that in? The decision is up to you, but here is some guidance.

Will you need to file federal taxes? I'm going to assume that you are someone's dependent, which means, except for temporary absences, you live with a parent or other guardian and you don't provide over half your support. In 2015, a dependent needs to file if any of these conditions apply:

1. Unearned income over $1,050.

2. Total income over $1,050 and over $350 of unearned income.

3. Total income over $6,300. (This is the standard deduction amount.)

4. Meets special income/taxation filing requirements e.g. self-employed or has an early withdrawal from a retirement plan.

For most dependents, unearned income such as interest or dividends is minimal, so the filing requirement is set on earnings. If you won't need to file, having nothing withheld can avoid the requirement to fill out a return to claim back the few dollars which were withheld. If you don't think you'll need to file, you can check 'Exempt' on the W-4, so no income taxes are withheld from your wages.

On the other hand, if you hope to earn over $6,300, you probably should have income taxes withheld. Our tax system is a 'pay-as-you-go' system; one way that system is enforced is penalizing those who owe more than $1,000 at tax time. But the penalty isn't as big a concern as the challenge of coming up with several hundred dollars to pay a tax bill.

How much to have withheld?There are two parts to selecting withholding on a W-4. The first part offers three choices: 'Single,' 'Married' or 'Married but Withhold at the Higher Singles Rate.' These don't refer to your marriage state, but whether you wish to have taxes withheld based upon a single deduction subtracted from your income and the single taxes brackets applied ('Single' and 'Married but Withhold at Higher Singles Rate') or the larger marriage-filing-joint deduction and broader married tax brackets ('Married'). 'Married' is a good choice for two people living on one salary, or those with significant itemization or credits. Most dependents should select 'Single.'

The second part is allowances, which roughly align with how many exemptions you'll have on your tax return. As a dependent you're allowed zero exemptions, but because the withholding system has some slack in it, a withholding allowance of '1' is close to breakeven, though some years you'll owe. The safer bet is '0,' which will cause more to be withheld.

What about Maine Income Taxes?Maine generally follows federal filing requirements; however, it has fewer special taxes due, and no taxes are due for a dependent earning less than $11,500. You can choose to be exempt for Maine even if you are not for federal taxes.

Enjoy that first summer job, but don't forget about your Uncle Sam!

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