- The Washington Times - Friday, April 8, 2005

The tax deadline next week carries a risk for teenagers who might not realize they must file returns if they received income above certain thresholds, according to the Internal Revenue Service.

About 5,973,000 16- to 19-year-olds were working as of March, 148,000 more than during the same time last year, according to the Labor Department’s Bureau of Labor Statistics.

“I have talked to several teenagers and college students in their early 20s who believe as long as they’re in school or living with mom and dad, they have no responsibility to file a return,” said Jackie Perlman, a tax researcher for H&R; Block tax preparation service.

However, the IRS says the teenagers could be in for a surprise if they fail to file tax returns.

“Income is income, no matter who earns it,” said John Lipold, spokesman for the agency.

A common mistake among teenagers is to assume that withholdings from their paychecks relieve them of the obligation to file tax returns.

“Like many taxpayers, they are under the assumption that taxes withheld are taxes paid, which is incorrect,” said Mark Steber, vice president of tax resources for Jackson Hewitt Tax Service. “They must file by April 15, 2005. Unfortunately, there are no special extensions for being a dependent teenager.”

They also often assume that income from occasional self-employment service jobs in summer or after school is not taxable.

Persons “with net earnings of more than $400 from self-employment must file an income tax return to pay their self-employment taxes,” Mr. Steber said. “Self-employment income can include lawn care, newspaper delivery, door-to-door sales and child care.”

In general, teens also must file returns if they received unearned income, such as dividends, interest or capital gains, of more than $800, or if they earned income of $4,850 from wages or tips.

The $4,850 figure is the standard deduction for all taxpayers.

The work teens do on their own, such as lawn mowing or house painting, is classified as self-employment by the IRS. They must pay Social Security taxes if they earned more than $400 from self-employment.

In cases in which they could get refunds, it would be a good idea to file returns even if they are not required to do so, accountants said.

The IRS focuses most of its audits on high income earners, usually making more than $70,000 per year, so the risk of audits for most teens is small.

Nevertheless, the agency often notifies teenagers and other taxpayers of deficiencies if someone who paid them money files IRS forms reporting the income.

IRS computers and personnel “red flag” forms indicating income was paid to a taxpayer who did not file a return or pay taxes on it.

Typically, the forms are the 1099s used by financial institutions for nonemployee compensation or the W-2s used by employers.

“If they have unearned income, the IRS will match that against the 1099s,” said Thomas P. Ochsenschlager, vice president of taxation for the American Institute of Certified Public Accountants. “They will notify. They have almost a 100 percent accuracy in getting back to people who have unearned income from interest or dividends.”

Teenagers who do not pay taxes on the unearned income “might have to pay penalties and interest,” Mr. Ochsenschlager said.

The IRS allows an exception for children younger than 14.

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