Today’s fantastic family finance article is:
“Sweet! Look at my huge tax refund!”
“$#@%*! How can I owe that much in taxes?”
Two very different tax-time reactions from your working child.
Same problem though.
Your teen has no idea how a W-4 form affects tax withholding from a paycheck.
Teach your teen this key concept: entering more allowances on the W-4 means less taxes will be paid along the way. Enter too many allowances, and you could be staring at a big unexpected tax bill come April 15. Enter too few, and you could be seeing a tax refund instead. Exempt means no taxes will be withheld.
For a teen getting that first part-time job paying a few thousand dollars or less, 0 allowances or exempt is likely the way to go.
For a young single grad getting a first full-time job, it’s probably a 1 in the allowance box.
Eyes glazing over with this tricky tax talk? Just teach your teen this handy limerick:
There once was a dude named Theodore,
Who was totally baffled by his W-4.
Allowances sounded good,
So he entered more than he should.
Surprise! Now he owes taxes galore!
Get tomorrow’s tip here.