Tips on completing your child’s W-4 Form.
When your child begins their summer job and will be paid as a W-2 employee, their new employer will require them to complete a Form W-4, Employee’s Withholding Certificate. The purpose of the form is to instruct the employer how to withhold income taxes from your child’s weekly paycheck. However, if your child’s expected wages will be modest (less than $15,000 in 2025), then he or she should claim to be exempt from federal tax withholdings this year.
To claim this exemption, a child must meet the following qualifications:
- Last year your child had no federal income tax liability, and
- This year your child expects to have no federal tax liability again.
To claim this special exemption on the Form W-4:
- Complete Step 1 (name and address).
- Leave blank Steps 2, 3 and 4.
- In the space below Step 4(c), your child will write “Exempt” and no federal income taxes will be withheld from your child’s pay. The same can be done on the state’s W4 as well.
Please remember that your child still pays Social Security and Medicare taxes on wages earned. To learn more about how our child should claim Exempt on their W2, please watch this 3-minute video that we prepared: Andrew Schwartz CPA on Kids Claiming Exempt on Their W4 Form – YouTube.
Opportunity to teach your kids about financial responsibility.
Earning a weekly paycheck is a great tool for children to learn about financial responsibility. Receiving a weekly paycheck presents parents with the opportunity to teach their children about money management and savings goals, including:
- Setting up financial objectives with your child based upon their weekly wages.
- Opening a savings account at your bank for your child that will be funded each week with a set percentage or set dollar amount of each paycheck received.
- Teaching the importance of building a small “nest egg” to be used for college or other personal expenses at a later date (books for school, a first car, entertainment, school related trips, etc.).
- And maybe adding a “parent matching component” to your child’s savings objective to entice your child to save more – such as for every dollar they add to their savings account, you add 50 cents to their savings account as well.
Getting an early start on retirement savings.
If your child has earned income from a summer job, he or she will be eligible to contribute to an IRA under their name, even if no tax return is required to be filed by your child. The maximum IRA contribution amount for 2025 is limited to the lesser of the child’s earned income or $7,000.
In most cases, the income earned by your child will be free from income taxes, assuming total income for your child will be less than the standard deduction of $15,000; thus, in this situation there would be no tax benefit in contributing to a traditional deductible IRA. For that reason, the most effective long-term strategy would be to make the IRA contribution into a Roth IRA to benefit from decades of tax-free growth.
Please note that the Roth IRA contribution can be funded by the parents (or grandparents) as a gift to your child but must be funded into an IRA under the child’s name. The due date to fund your child’s Roth IRA for 2025 is 4/15/26.