Tuesday, December 18, 2018
Rice University Baker Institute for Public Policy, Taxing Teens: Working Children, Family Businesses, and the Kiddie Tax:
Being able to manage money is an important life skill, but many American youth are not well prepared to do so. A recent Organisation for Economic Co-operation and Development (OECD) study shows that more than 20% of U.S. high school students do not possess basic levels of financial literacy. This means they can at best identify basic financial products such as invoices or make simple decisions on every day spending. But the ability to create a simple budget, conduct calculations in percentages, appreciate compound interest on savings or loans, and understand income taxes are all beyond their comprehension.
How should parents teach their kids about money? Parents can draw ideas from endless references, including their own experiences, family and friends’ suggestions, and tons of publications written by personal finance experts, journalists, and successful entrepreneurs. Repeated themes from these resources include putting your kids to work so they can earn money and develop solid work ethics, teaching them to set money aside for savings and investments so they understand delayed gratification, and helping them understand how to correctly follow the tax system so they become responsible citizens. This report reviews different types of income sources for kids and young adults and the associated tax implications. It also discusses the revised kiddie tax rules after the 2017 tax act (TCJA, Pub. Law 115-97).