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My daughter is still fully a dependent for my tax returns. However, my employer gave her a part-time side job as a normal employee and gave her a W2. She earned a little over $2100 and has no other income. The IRS says she only needs to file if she earned more than $3100.
Her taxed withholding amount was about $25 (does not include Medicare or SSA deductions, obviously). Should I file a tax return for her and see if she gets the $25 back? Are there any hidden downsides to doing that?
The number that the IRS mentions is the number where you are required to file.
You also will want to file, if you want that money refunded.
Because your child has earned income, they can put money into a Traditional or Roth IRA. With a Roth IRA, the person pays tax on the earnings now, but can pull the money out tax free when they retire. Because your child made so little money, their tax rate is zero.
Note that the custodian will submit a form to the IRS in the May 2023 time period listing the 2022 contribution. It is possible that if your child didn't submit a 1040 form, the IRS may come looking for more information. It is also possible that the information on the W-2 sent to the IRS from the employer is enough to prove the ability to contribute to the Roth IRA.
Don't forget about state taxes, if you live in a state that taxes income, and state tax was withheld.
The standard deduction for 2022 is $12950 for someone who is single or married and filing separately. There is a special rule regarding dependents:
If you can be claimed as a dependent by another taxpayer, your standard deduction for 2022 is limited to the greater of: (1) $1,150, or (2) your earned income plus $400 (but the total can't be more than the basic standard deduction for your filing status).
At $2100 income for the past year, she'll get all of the collected taxes back (except of course SSA & Medicare). At minimum wage, that $25 represents about three hours of work. Filling out the federal and state income tax forms might take three hours for a first timer, even for a very simple return. Make her work those three hours to fill out the forms and learn about the wonderful nuances of tax law (and learn to swear at them on an annual basis). It will be a unique educational experience.
In addition to the monetary reasons for filing, there is an additional benefit to filing now: it will simplify filing in future years, so long as she files each year. E-filing is much simpler when the past year's taxes were filed and some AGI is reported. When filing for my children, the first year was always the hardest - after that first year it became easy.
In particular, if you are hoping to have her file in the future on her own behalf, it will help make that simpler if she files (or you file for her) this year, even for only $25 back.
