Uncle Sam Does Tax Some Youths

QUESTION: Can it be true that even little children who earn a few dollars from a lemonade stand or newspaper route now have to carry a Social Security card and pay income taxes? I am certain I heard a newscaster say that the other night, but I can’t believe that any congressman who cares about his job would vote for such a law.--P. Y.

ANSWER: Children do sometimes have to pay income taxes and obtain a Social Security card but the law isn’t quite as strict as you’ve outlined it.

Any child who is 5 years of age or older and earns $2,540 or more a year must have a Social Security number and is required to file a federal income tax return. A child is some entrepreneur if he’s raking in that much money from lemonade sales.

There are much stricter rules, however, if the child’s income is derived not from such so-called earned income but from investments. In that case, only the first $500 escapes taxation.

If the child’s investment income exceeds $500 in a single year, he must obtain a Social Security number and file a tax return. And if he is younger than 14, the tax on his earnings is figured not at the child’s low rate but at the parents’ presumably higher one.

The latter law is a new one. Lawmakers striving to reform U.S. tax laws found it rather fishy that so many children of high-income taxpayers had suddenly become investment wizards. Congress decided that it wasn’t right for the nation’s tax laws to encourage this use of children as tax shelters by their parents--even if the investments are used to finance the child’s education or otherwise benefit him directly.

Hence, the change in the law requiring taxation of a child’s investment income at the parents’ tax rate.

Q: I’m in a panic because I need to income average on my 1986 tax return but I seem to have misplaced my 1985 and 1984 federal tax returns. The filing deadline’s only two weeks away, and I have been trying for days to get through to the Internal Revenue Service on the agency’s 800 phone number with no success. What do I do?--D. N.

A: Go to the closest IRS office and pick up two forms. The first is a filing extension. Fill it out and file it immediately. This will give you a three-month breather while you wait for the IRS to send you a copy of your return.

The second form you will need is IRS Form 4506. This is a request for photocopies of your tax returns, which the IRS keeps on file. Each return will cost you $4.25.

Q: My son’s employer recently posted a notice urging employees to be on the lookout for qualified workers with handicaps. He thought this a rather odd request and started asking some questions. What he heard is that the company qualifies for some kind of government handout if it hires handicapped people. Do you know if that’s true?--B. I.

A: The federal government does reward employers who give jobs to the handicapped. Specifically, companies can receive a tax credit of up to $2,400 for each handicapped worker they hire. The actual credit is limited to 40% of the first $6,000 of a handicapped worker’s wage his first year on the job.

Employers who hire handicapped teen-agers for summer jobs can also qualify for the tax credit--if the youths are on the job at least 14 days or 20 work hours.

Another government incentive to discourage discrimination against handicapped workers is the threat of withdrawing government contracts. Companies that do substantial work for the federal government are required to prove that they don’t discriminate against handicapped veterans of all wars and all veterans of the Vietnam War.

Beginning in March, 1988, such employers will be required to meet an even tougher test. Companies that receive $10,000 or more in federal contracts a year must from that date on file an annual form with the Labor Department showing how many of their workers are Vietnam veterans, how many are handicapped veterans and what jobs they occupy.

If the government decides that a company isn’t hiring its fair share of these veterans, the company can lose its federal contracts.