More students than ever are working part-time or in the summer. Do they have to file a tax return? Will their parents be penalized? Two experts debunk certain myths.
Question: I earned $2,000 in the summer of 2023, do I absolutely have to file my income tax return?
Answer: No.
But your income doesn’t magically disappear. If you do not file a tax return, one of your parents will have to enter the amount you earned on their own tax return. “The parent will put it in their dependent child. And it’s not a choice. The parent must declare their child’s income anyway,” explains Luce Morin, CPA, owner of Activ accounting and tax services, in Lachine.
“If you are under 18 years old, you must also check if your employer has deducted tax from your pay,” emphasizes Luce Morin. If this is the case, it is in your best interest to file your income tax return to collect these amounts. »
PHOTO MARTIN TREMBLAY, LA PRESSE ARCHIVES
Luce Morin, CPA, owner of Activ accounting and tax services
Let’s take a young person who earned $6,000 and paid $300 in taxes. He does not have to pay taxes on $6,000 of annual income, she explains. “If he doesn’t file his return, he loses that $300. »
“If the child does not file a tax return themselves, the tax withheld is never recovered,” says Yannick Lemay, tax specialist at H&R Block.
For the 2023 tax year, a student can earn up to $15,000 before having to pay tax in Canada. If you earned more than $15,000, you absolutely must file your income tax return.
Have you withdrawn money from the Registered Education Savings Plan (RESP)? You absolutely must file a tax return. “There is a portion of the withdrawal which is considered taxable income and the financial institution will issue a slip, the T4A,” explains Yannick Lemay. It is important to rely on the amount on the slip, because there may be a difference between the amount on the slip and the withdrawal amount. »
Please note that the employer deducts contributions from your pay for employment insurance, the Quebec Parental Insurance Plan (QPIP) and, from the age of 18, the Quebec Pension Plan. These are sums that you will one day claim if you are unemployed and have a child. The pension will be paid according to your choice around age 65.
I worked in 2023, will my parents pay more taxes?
It depends.
PHOTO FRANÇOIS ROY, LA PRESSE ARCHIVES
Many students have a job to pay for their small expenses.
“When the child earns income, it can have an impact if the parent is alone, lives without a spouse and receives the credit for an eligible dependent,” maintains Yannick Lemay. In the way the credit is calculated, the child’s income reduces the amount of the credit.
“Whether or not the child files their income tax return, the single-parent parent will still be penalized if their child works, because the parent must enter the child’s income in their own return. »
The amount of the federally refundable credit is 15% of $15,000 in 2023, or $2,250, from which the child’s net income is subtracted.
“If the child makes $5,000, for example,” explains Luce Morin, “the credit drops by $5,000 and goes down to $10,000. So the direct loss is the amount of the child’s net income multiplied by 15%. In the example mentioned here, that would therefore be a drop of $750. »
The parent would have a $1,500 tax credit instead of $2,250.
When a couple with children separates and each spouse does not have a new official spouse, they are considered single parents. “If there is only one child, we alternate to give the credit one year to the father, one year to the mother. If the couple has two children, each puts one child on their declaration to be entitled to this credit,” specifies Luce Morin.
My parents are CEOs and earn high incomes, am I entitled to solidarity credit if I am 18 and over and have no income?
Yes.
Parental income has no impact on this credit, recalls Yannick Lemay. To be eligible for the solidarity tax credit from the Quebec government, you must have been 18 years old on December 31, 2023. You will be eligible even if, in the summer of 2023, you were 17 years old.
To receive this credit, your income must not exceed $53,000, an easy condition to achieve for a young student.
“The credit is made up of three elements: TVQ, housing and northern village. A student who lives with his parents and does not pay for housing will be entitled to the QST component, which will represent approximately $346. »
You get the same amount by earning $15,000 to $41,000, then the credit starts to drop.
If you live in an apartment and have income of $15,000, the credit amounts to $1,057.
A person who lives in a northern village gets $3,097.
The other advantage for a young person of filing their income tax return is the federal GST credit.
To obtain it, you must be 19 years old at the time of payment of the credit, either in July 2024 or the months that follow until June 2025. “This means that if the child was 17 years old in 2023, but that he will be 19 years old before June 2025, it is worth it for him to file an income tax return to benefit from this GST credit,” specifies Yannick Lemay.
As an indication, the amount was $496 for the 2022 tax year.
PHOTO ROBERT SKINNER, LA PRESSE ARCHIVES
Convenience store jobs are often held by students.
I am 14 years old and I work at the convenience store, can I take RRSPs?
No.
A worker begins accumulating RRSP rights at age 18 and obtains 18% of earned income each year. Theoretically, a student could take RRSPs the following year.
“On the other hand, before a child starts taking RRSPs, we will wait until he or she earns a good income, otherwise the RRSP deduction will not be advantageous,” emphasizes Luce Morin. Unless the kid earns $75,000. »
However, from the age of 18, he can take TFSAs.
The best strategy is to accumulate rights and take out RRSPs when the income deduction is attractive.
Do I have to file my declaration just to claim my medical expenses?
No.
It is better to put the medical expenses of the whole family in a single tax return, explains Yannick Lemay.
“We collect all medical costs, such as prescriptions, visits to the dentist, psychologist, and, from this total, we subtract 3% of the father or mother’s net income. »
Often, medical expenses are put on the return of the parent with the lowest net income, because that is what is most beneficial.
If the family’s total medical expenses are $4,000, for example, and a parent’s net income is $50,000, we first calculate 3% of this income. Which gives $1500. Then we subtract $1500 from $4000. The credit claimed for medical expenses will therefore be $2,500.
“The child can claim their own medical expenses and the parents can claim only theirs, but it is more optimal to deduct everything in a single declaration,” says Yannick Lemay.
When using medical expenses in separate returns, the 3% of net income must be deducted several times.
Can I put my high school tuition fees on my declaration?
No.
Tuition fees for post-secondary training only are accepted to obtain the federal and provincial tax credit.
“If the child does not earn enough to use his tuition fees, we transfer them to the parents. If the child makes more money, it is he who will use the tuition fee amounts and he will not be able to transfer them to his parents,” explains Luce Morin.
“If it is the parents who want to claim the credit, the designation must be made on the child’s declaration. He indicates his tuition fees on his declaration and also indicates that he transfers them to his parents. It requires an exchange of information between parents and children,” adds Yannick Lemay.
What expenses can you include in the calculation of this tax credit? Tuition fees with a receipt issued by the CEGEP, university or professional training center. Examination fees paid to a recognized educational institution, fees for using library or laboratory facilities and internship fees are also accepted.
When a student moves with the aim of being at least 40 km closer to their school, they can deduct their moving expenses on their income tax return.
“If he does not have a large income the year he moves, he can carry forward the unused deduction later,” specifies Yannick Lemay.