There's No Summer Break From Taxes

By Michelle Singletary
Thursday, June 8, 2006

And you thought you could have the summer off with no tax issues to think about? Fuhgeddaboudit.

In many cases, however, some summertime moves could land you some welcome tax breaks.

For example, working teenagers or college students should be careful how they fill out their W-4 forms for their summer jobs to avoid having too much tax withheld. No point in their giving money to the government when they could use it now.

Here's the deal. You may be exempt from tax withholding if you meet all of the following criteria: you can be claimed as a dependent (usually on a parent's return), your total 2006 income will not be more than $5,150, unearned income (interest, dividends, etc.) will not exceed $300, and you had no income tax owed for 2005, according to Internal Revenue Service spokesman Jim Dupree.

"This is the time to be mindful of your child's tax situation and fix it so taxes aren't taken out," Dupree said.

To claim exemption from withholding, you generally would need to have had no tax liability the previous year and expect none this year.

However -- isn't there always one with the IRS? -- your child will still have to pay Social Security and Medicare taxes.

To make sure your children don't have unnecessary taxes withheld, have them her read the W-4 carefully before filling it out. Actually, it's better to sit down with your children before they start work to go over how to fill out the form. Go to http://www.irs.gov . Then search for Form W-4, "Employee's Withholding Allowance Certificate." You will see that if your child is exempt, only lines 1, 2, 3, 4 and 7 need to be filled out.

This may be a good time to also have a conversation about reporting all taxable income. If your child earns tips in a summer job, those tips are taxable and must be reported.

(If you're getting married this summer, you may want to fill out a new W-4 form. That change in your marital status could mean more money in your paycheck.)

Don't forget that if you send your child or children (under age 13) to summer camp, the cost may count as an expense toward the Child and Dependent Care Credit.

You can claim the credit if you have to put your children in summer camp programs so that you (and your spouse if filing a joint return) can go to work or look for work. This is no different from when you pay for child care during the school year so you can work -- doesn't matter if the kid is having more fun in the summer. Your fun is getting the tax benefit if you qualify.

"Make sure you get receipts from the camp," Dupree said.

You will also need to get the name and address of the camp provider and the organization's or business's tax identification number.

Moving this summer because of a change in your job location or for a new job?

If so, don't forget that your moving expenses may be deductible. College graduates, pay close attention.

To qualify for the moving-expense deduction, you must meet a distance and time test, unless you are a member of the armed forces and your move was due to a permanent change of station.

Let's look at the distance test first. Your move will meet the distance test if your new job is least 50 miles farther from your former home than your old job location.

To determine this, the IRS says, first figure the distance between your old home and your new job and then subtract the distance between that residence and your old job. If the result is 50 miles or more, you have met the distance test.

The second test is time. You have to work full time for at least 39 weeks (it doesn't have to be at the same job) in the 12 months right after you move, according to the IRS. If you are self-employed, you must work full time for at least 39 weeks in the first 12 months and for at least 78 weeks in the first 24 months after you move. There are exceptions to the time test, such as a death or a disability.

You can also deduct the expenses of traveling to your new home, including your lodging expenses. You cannot, however, deduct meals.

And don't try to get slick with this deduction. No double-dipping. You cannot deduct moving expenses that were reimbursed by your employer. In fact, some moving expenses reimbursed by your employer may be taxable income.

For more specifics about which moving expenses are deductible refer to IRS Publication 521, "Moving Expenses."

All these tips are just a midyear reminder that you should be mindful year-round of the many things that can help you save on your taxes.

Penny Pincher of the Year

It's time again for my Penny Pincher of the Year contest. All you have to do is nominate someone with an original penny-pinching strategy -- a friend, a relative, even yourself. Edited versions of entries may be published. Send your entries by June 16 to colorofmoney@washpost.com . Please put "2006 Penny Pincher of the Year Contest" in the subject line. Please include your address and daytime and evening phone numbers. You can also mail entries to Michelle Singletary, Color of Money, 1150 15th St. NW, Washington, D.C. 20071. Please put on the front of the envelope "Penny Pincher of the Year Contest."

· On the air: Michelle Singletary discusses personal finance Tuesdays on NPR's "Day to Day" program and online athttp://www.npr.org.

· By mail: Readers can write to her at The Washington Post, 1150 15th St. NW, Washington, D.C. 20071.

· By e-mail:singletarym@washpost.com.

Comments and questions are welcome, but because of the volume of mail, personal responses are not always possible. Please note that comments or questions may be used in a future column, with the writer's name, unless a specific request to do otherwise is indicated.