Before starting a job, a student is given a Form W-4 to fill out. Line 7 of the W-4 allows an employee to claim exemption from federal and state income tax withholding, if he/she had no income tax liability for 2006 and does not anticipate earning enough to pay income tax for 2007, by writing the word “EXEMPT” in the box indicated.
Writing “EXEMPT” on the form means that the employer will withhold only FICA (Social Security and Medicare) and any required state unemployment and/or disability taxes from the student’s wages.
For 2007, the federal standard deduction for a dependent with a W-2 is the greater of $850.00 or the sum of $300.00 and the dependent's earned income, not to exceed $5,350.00 (plus $1,300.00 if age 65 or blind). The state amount varies, and may be more of less than $5,350.00.
If a dependent student with an after-school job does not expect to earn more than $5,350.00 during 2007, including up to $300.00 in interest, dividends and capital gains, the child should claim “EXEMPT” on his/her Form W-4. This way he/she will not have to file a federal income tax return simply to get a refund of the income tax withheld.