Are your children ready for a summer job?

If your children are planning to work this summer, make sure you and they know the basics on taxes.

Summer wages.  Generally they'll be able to earn up to $4,750 before they start paying tax, assuming they have no other source of income.  However, they'll probably have at least some income tax withheld from their paychecks in addition to payroll taxes.  If they pay too much, they can recover any overpayments when they file a return next year.

Withholding.  They'll have to fill out a W-4 when they start work — usually they should claim one allowance, but this can vary depending on the circumstances.  If they have a job that earns tips, they should keep track of the amounts.  Their employer should prepare tip estimates, but it's useful to have their own records in case of disputes.  Remember that tips are taxable income, and they will need to have taxes withheld on them.

Some other issues to keep in mind.  If a child is in school, summer earnings can affect eligibility for college financial aid.  If you're counting on financial aid, check out the earnings limits ahead of time.  Also consider encouraging your child to save in a Roth IRA, even though it's probably the last thing he or she wants to do with summer earnings.  Amounts invested in a Roth at a young age can grow tremendously, due to tax-free compounding over many years.  As an incentive, you might even consider matching any amounts your child is willing to save.