It’s my understanding that if you earn more than $400 that’s not taxed, you are supposed to file a tax return. In 2015, S did not reach that limit. But so far in 2016, he earned $375 as an umpire with no taxes withheld (Little League just wrote checks for $25-$35 per game, did not issue actual paychecks with deductions). He also was paid a couple hundred in cash from a neighbor for odd jobs, snow shoveling, etc. He also sells on eBay (but is that a hobby?) and hasn’t closely tracked his expenses but estimates profits for 2016 at $500+.
So overall, he “made” over $400, but there is only a paper trail for $375. Does he need to file a return (a 1040, I guess) for 2016 reporting all untaxed income sources? He is age 17 in 2016, if that comes into play.
Also, while running NPCs, I have put in zero for earned income as he has no W-2s. He does have money in the bank (some from this work, some from birthday gifts, babysitting in past years, eBay, etc.) which I am listing as his asset. Then there’s the FAFSA; since this year it’s asking about 2015, I don’t foresee a problem. But what about next year?
I may be overthinking this; I want to be honest but not “cost” him money, if that makes any sense.
Sounds like he has a number of sources of self-employment income to report on 2016 Form 1040, Schedule C and owes self-employment tax. Also check your state filing requirements.
Will he be writing about his umpire job on college applications (in essays or included in a list of extracurriculars)? If so but doesn’t file a tax return to report the income - looks odd to me.
Good example of a system that needs an overhaul. Always safer to file even if you don’t owe. Technically I think his little league money is 1099 income (even if LL did not issue a 1099) and he at least owes the self employment tax. However, the cutoff income for owing self employment tax is $400. So on schedule C he could deduct expenses such as gas, uniform, etc. which would likely put him under the threshold.
I think giving him the experience of what it is like for a small business, even with a gross income of $400, to comply with basic tax laws might shape his views a little.
“I have put in zero for earned income as he has no W-2s.” - His earned income will be self-employment income minus his expenses.
"I may be overthinking this; I want to be honest but not “cost” him money, if that makes any sense. " - it will cost around 15% of his earned income in self-employment tax.
My daughter was in the same boat and she was not happy losing a chunk of her measly earnings. We had a discussion about who built the road leading to the tennis courts where she earned her money and who flies jet fighters over them to protect her. I made her pay $75 for pedagogical reasons.
She was just over 18 so I do not know how your son being under 18 plays out.
I can only tell you what we did. The first year we filed FAFSA, my D had a few hundred $ in babysitting income.
She was not required to file a federal tax return but a state return. So I just reported her income on FAFSA and put that she did not file a tax return.
Then this year when we did FAFSA she had income from a job, babysitting income and taxable scholarship income which totaled about $7,000. So she filed a federal tax return and we imported info from that and parent return into the FAFSA.
If he received paypal payments for his ebay sales it should be easy to track what the income was. He can probably deduct ebay fees and paypal fees and such as expenses.
My D just wrote down the date, who she babysat for and $ earned to keep a personal record.
FAFSA gives an income protection allowance for dependent student of $6,420 for 2017/18 FAFSA. Also a deduction for federal, state, soc sec tax paid.
More impact than student income will probably be student assets owned on the day FAFSA is filed, unless he has spent all his earnings already.
My D worked in the summer and wants to save up some money so we will have a several hundred increase in our EFC from that. But we are not close to Pell range in our EFC anyway.
Just as a follow-up - self-employment tax does not pay for roads and bridges, etc. It is for social security and Medicare only so the taxes are not means tested on the premise that you are, at least in part, paying for your own future benefits.
Yes, a 1099 needs to be issued if over $600. But if self employed income is over $400, one needs to file…and pay self employment tax. And remember, many self employed freelancers actually earn well in excess of $400…or $600… But not from the same employer.
I believe our government commingles all income together. There is no separate pile of money set aside to pay for SS/Medicare. The person in this income range derives no benefit from paying into SS - it will not count towards SS credit so it is just a tax.
Keep in mind, as someone else has said, if you do decided to file for the income has earned as an umpire, he can deduct mileage to and from the games, his uniform, dues to any association he has to pay, courses, he has paid for, etc. Same with his expenses associated with anything he has sold.
Thanks, everyone, for the help. I looked at the IRS website (again) and it looks like he will file a Schedule C (or maybe Schedule C-EZ; it seems to depend on how “inventory” is defined which I still have to research). Is the Schedule C in addition to a 1040 EZ or does it replace that form (as I looked at the 1040, and it asks for W-2 income).
He may get a 1099 for the ump work, but won’t know until January. Clearly the neighbor won’t be issuing one. I saw a reference to a Schedule SE; does that apply? I do our taxes with TurboTax so maybe it will point me to the correct forms next February when I help him file; but H, D and I are strictly W-2 income so this is unfamiliar to me.
I did read the IRS info on ebay selling vs. occasional yard sale income. For S, it appears to be a business. He hasn’t been tracking his eBay expenses (although income is easy as he can just check sales history) so he’ll have to start doing that, as well as recreating the cost of what he’s bought and sold already.
So he would lump together the umpire pay, plus the eBay sales, plus the work for the neighbor as income; and then deduct expenses, which from the above looks to include: ump uniform, plus gas to get to and from ump jobs; purchase price of the items he sold on eBay, plus shipping supplies, plus Paypal and eBay fees. He does use our family computer and printer as well as his cell phone for listing and shipping and ump scheduling, but we don’t charge him so I guess they are not really his expenses (and would be small amounts anyway). And if gas is an expense for the ump job, sounds like it is appropriate to also count as a business expense the cost of gas to/from yard sales, thrift stores, etc. (where he buys the stuff that he then turns around and sells on eBay) plus Post Office to ship items.
When you do Turbotax you should be able to indicate somewhere that you had self employment or business income. Then schedule C or CEZ should let him list some expenses and it will figure a net business income (gross receipts minus expenses). Schedule SE is for figuring self employment tax and it should be generated.
I believe schedule C or CEZ requires filing a 1040.
Your son needs to be able to document his expenses if he is claiming them I would think.
Mileage should be able to be figured by distance to the field and how many times he umpired (the LL would probably know, or go by how many checks he received).
So that should be easy to prove. For shipping supplies, uniform he might need receipts. Paypal fees and ebay fees should be in his account histories.
for amusement, you should calculate how much your time is worth multiplied by the number of hours spent researching this (plus the cost of Turbotax). I suspect the process will cost more than the tax owed. Also imagine how long it would take your son to figure this out on his own. Our system is a shambles.