Taxpayer asks:
My daughter worked as a bagger (bagged groceries) last year at our base commissary. The baggers do not receive a salary and work strictly for tips. I already checked with the “Head Bagger” at the commissary who said no type of 1099 will be sent. How do I go about claiming the monies my daughter earned? I also heard there is a set amount a child under 18 can make that is not taxable. Is this true? Thank you.
Taxgirl says:
First of all, I hope your daughter got a lot of tips. Bagging groceries is much harder than it looks. I should know: I was the worst bagger in the history of Winn-Dixie. I’m pretty sure that’s why they stuck me on the express lane.
Next, I hope she kept good records. Without a 1099, it’s hard to figure the amount paid. When you’re paid in tips, I highly recommend keeping a tip journal (yes, this applies to waitstaff and others who work for tips). Just jot down the amounts that you receive each week. If you keep excellent and contemporaneous records, the IRS will generally accept a tip journal as proof of compensation.
With that, whether your daughter has to file her own return generally depends on two main things: whether she earned her money and how much money she made.
Earned income is income from wages, salary, or self-employment; tips are considered earned income. If your daughter has earned income of less than $5,700 for 2009, she does not have to file a return or pay federal income tax so long as she is single and under the age of 65. Even if she doesn’t meet the criteria for filing, she should file a tax return if federal income tax was withheld from her income (which doesn’t sound like the case here) or if she qualifies for certain credits which would result in a refund. She’ll also need to file if she owes other taxes (check your state’s tax requirements for this one).
The rules are different for unearned income like dividends and interest. For children under the age of 18, or under the age of 23 and a full-time student, the first $950 is considered tax-free and the next $950 is taxed at the child’s rate. Unearned income over $1,900 is taxed at the child’s parents’ tax rate (in other words, your tax rate). This is the so-called “kiddie tax.”
It’s even more complicated if there is a mix of earned and unearned income. Check Pub 929 for more details (will download as a pdf).
Remember that these rules apply to children who are dependents. Those who are not dependents because of their age or filing status; or who are emancipated, like the ever adorable Drew Barrymore, have a different set of rules.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
If the dependent WAS required to file, would they also have to include Form 4137 (Social Security and Medicare Tax On Unreported Tip Income)?….or even if they weren’t required to file…wouldn’t they STILL have to pay Social Security and Medicare Tax (Take a look at the instructions on Form 4137 under ‘Who Must File’)?
I think you may have to file either the Form 4137 or a tax return with Sch C (and SE) if the earnings were over $425, even if no income taxes are due.
Is it kosher under Labor Laws to work a “bagger” for tips only? Don’t the minimum wage rules still have a threshold for tipped employees?
Tom…i was thinking the same thing…most States would look harshly at this arrangement. And what if the kid slipped and fell while at work? No worker’s comp! But maybe there is a loophole because the original poster did say this was happening at a ‘base commissary’.