Teenagers Give yourself a 10% Pay Raise

Teenagers, and college students that work part time, maybe just weekends or just a few hours a week, there is a way to give yourself a ten to fifteen percent pay raise.
Do you know that if you are still in school, working part time, you may not need to file annual Federal taxes? This is not about some kind of tax dodge or cheat or funny scheme. This is simply the rules.
But first, before you do this, you need to do a little calculation first or you may get an unpleasant surprise next spring at tax time. You should calculate or estimate your expected income for the year. Later if your income changes, you can change how you report as well. Let’s do a little estimation in the mean time. If you expect your end of the year income to be no more then $8450, then this article is for you.
First of all many people have the misconception that just because you live and work in the United States of America, the greatest nation ever conceived by man, you are required to file a tax report, that is not correct. There is nothing in the tax code that says, “Every one must file a tax report.” What it does say is something like; everyone who owes taxes must pay them by first filling a tax report.
So what does it take for an adult not to have to file taxes? The clue is printed on IRS form 1040EZ on line 5. This is what it says: “If no one can claim you (or your spouse if a joint return), enter $8,450 if single; $16,900 if married filing jointly.”
The magic to those numbers is this; you take your expected “earned” income then subtract the $8,450 if single. If what you get is a negative number then you wont owe taxes and wont need to file, if it is a positive number then you “may” owe taxes on the amount remaining and “may” have to file.
There are a few issues that you need to understand before you act on this. The most important one is to understand where the figure $8,450 comes from. The $8,450 is actually two numbers added together, the “Standard Deduction,” and the “Individual Exemption.”
There are three Standard Deductions that all individuals file under: 1. Single or Married filing separately, $5,150. 2. Married filing jointly or Qualifying widower, $10,300. 3. Head of household, $7,550.
There is one value set for Individual Exemptions, which is $3,300. That figure is for the reporting year 2006 it changes each year. What you do with this number is multiply it times the number of people in your household. For single people that would be one times $3,300 or $3,300. For a family with four children and the two married adults that would be six times the $3,300 or $19,800.
If you are single, you would add the Standard Deduction of $5,150 to the Individual Exemption for one person, $3,300 and, magic, $8,450. If you are married, you would add the $5,150 twice then add the $3,300 twice to get $16,900.
If your expected income is less than this then you are a candidate for what this article suggest.
The next part to understand is the IRS Form W-4. Ok, a little class participation, raise your hand if this was true for you. Remember when you were a teenager starting your first job. You are in the human resource office signing papers and they put an odd looking government paper in your hand titled, “Employee’s Withholding Allowance Certificate”: W-4.
It looks easy. You fill in your name where is says name, and address where it says address. Line 5 asks about total allowances from above. You look at the top of the form where you had you listed, easy enough so you write a “1” in the space. Now you sign and date it and pass it along and go to the next paper they gave you.
Anyone with a hand raised? Now, of those who had their hands up, did anyone ever tell you the meaning of that “1” on line 5, or how it would affect your paycheck?
That “1” represents the “individual exemption” that was mentioned earlier for $3,300. How that calculates in as your withholdings is a bit at your companies own discretion. But, what if you don’t want your company to withhold any federal tax money? Yea, that is legal. You write on line 7 “Exempt.” Sign it and hand it to your employer. You now will not have any Federal tax money withheld and you just got your first pay raise. The difference between putting a “1” on line 5 and “Exempt” on line 7 is somewhere between ten and fifteen percent, depending on you HR department’s calculations. No one gets out of paying Medicare or Social Security withholdings so that will still come out.
There is another important issue. That “1” on line five, you may not get to claim it come tax filing time. This means, when it gets around to tax time and you check to see if you need to file or not, your deduction level may not be $8,450 but $5,100. On the first entry of the form W-4, it asked, “Enter 1 for yourself if no one else can claim you as a dependent.”
What this means is that if you are living with a parent or guardian of some sort and they provide more than 50% of your upkeep they get to claim that “Individual Exemption” of $3,300 not you. Then your taxes would start at $5,100 not $8,450.
The rules says “can” so that if they can they “must,” but in practice if the two of you decide among yourselves that you can claim your own exemption then you are back up to the $8,450.
One last note, if you review your income expectations in October or some other month and you find you have better then expected earnings, more than the $8,450 figure, go to your human resource department for your company, and make out a new form W-4 and have them start withholding tax money. There is a small issue here as well, some HR departments are less than responsive to their employees, and you may get stuck without your form W-4 changed. If this happens then you may find yourself owing Federal taxes.
The choice was to not withhold or to withhold federal tax money. The article discussed not withholding, what if you do withhold, what happens then? Let’s say you earn $8,300 and have federal withholdings of $490. Your earnings being less than the $8450 figure means that you are not required to file and if you don’t file and report you income, no one will send you a scary letter or come knocking on your door, and no one will say thank you for your donation to the United States federal government for your donation in the amount of $490. If you don’t wish to make that donation then you would be required to file some type of the form 1040, probably the form 1040EZ, to claim your refund of $490.
With all this in mind, do you get that 10% pay raise? It is legal but the final question comes down to this, should you take it? Only you can decide.