Sometimes The Irs Just Doesn't Care - income tax on teenage earnings - includes information on credit card rates - Brief Article

Kiplinger's Personal Finance Magazine, March, 2001 by Kimberly Lankford

Q & A | How to figure out whether a teen owes income taxes on BABYSITTING EARNINGS.

In addition to babysitting for a group of families, my 14-year-old daughter regularly earns a little more than $20 a week helping out with child care at our church. Does she have to file a tax return for 2000 and pay taxes on her earnings?

--ROBERT VOGLER, Chesapeake, Va.

It depends on how much she made and how much, if any, was investment income, including interest on a savings account. If babysitting was her only source of money, then she could have earned up to $4,400 without owing income tax or having to file a return. The same $4,400 trigger point applies if she earned up to $250 in investment income. But if her investment income surpassed $250, she has to file a tax return if her total income came to more than $700.

From your description, it sounds as if the church should be treating your daughter as an employee and withholding income tax and social security taxes from her paychecks, says Simeon May, executive director of the National Association of Church Business Administration. The church should have provided her with a W-2 that lists how much money she received and how much was withheld. If so, she'll want to file a return even if she owes no tax so that she can reclaim the income tax that was withheld. (She can't reclaim the money that went to social security.)

That's how things are supposed to work, but sometimes the reality is different. "A lot of churches don't want to go through the hassle" of treating low-paid, part-time workers as employees, says May. You should ask the church's accountant how payments to Four daughter were reported, if at all.

The parents your daughter babysits for don't need to worry about these issues: Students under age 18 who babysit in families' homes part-time are subject to special household-help rules that exempt them from being treated as employees.

The bottom line for your daughter: If the church didn't withhold taxes from her checks and her investment income was $250 or less, she probably doesn't have to file. Her income appears to fall below the threshold, so the IRS doesn't care about her earnings.

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RELATED ARTICLE: Credit cards

Federal Reserve rate cuts will quickly shave the cost of carrying a balance.

The falling prime rate is good news for families with credit card debt. For each one-half percentage point that the prime declines, the average family--which carries an average balance of $7,500-saves $35 to $40 a month, says Robert McKinley, president of CardWeb.com, which provides data about credit cards. The prime fell from 9.5% to 9% following the Fed's early January rate cut, and more cuts are expected (see "Ahead").

Although some credit cards charge a set rate, the vast majority carry a variable interest rate based on the prime. Most issuers implement rate changes once a month, so falling rates should have an almost immediate impact on your cost of carrying a balance. A few cards reset quarterly. In those cases, the first drop will show up on your April statement.

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--JOAN GOLDWASSER