Question: I have heard that full-time high school and college students do not have to pay taxes. Is this true?

Question: My daughter worked two different places in 2005 and made a total of $4,279.12. Does she have to file an income tax return?

Answer: I hate to be the bearer of bad news, but high school and college kids don't get a tax break just because they're full-time students. Whether you have to file a tax return doesn't depend on your age or your student status. It depends on how much you earn, and where it came from.

Here's the drill: Children whose only income came from bank or mutual fund accounts in their own name — and that includes custodial accounts — must file a tax return if their investment income during 2005 was more than $800. Investment income includes such things as stock dividends, capital gains and interest on savings accounts.

Children who had a paying job last year — working in a retail store, for example, or working as a lifeguard — must file a return if their wage income was more than $5,000. So, with earnings of $4,279.12, the young woman in the question above is probably home-free.

But there is one exception: children who had earnings from a job and investment income. If your child had more than $250 in investment income, she'd have to file a tax return even if her earnings were less than $5,000.

You may want to file a return for your child even if it's not required by law. That's because filing a return is the only way she can recover any taxes withheld from her paychecks. Kids often get back most or all of their income taxes. But many teens are surprised — and disappointed — to learn that the rule doesn't apply to Social Security taxes. There's no way to get that money back until they retire and collect benefits.

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Question: My son would like to know what currency denominations are higher than the $100 bill.

Answer: Actually, the Benjamin is the largest bill in circulation. The government used to issue notes in denominations of $500, $1,000, $5,000 and $10,000, but they were discontinued because there was little demand for them.

The largest bill ever printed had a face value of $100,000. It was exchanged among banks and was never circulated to the public.


Have a question about kids and finances for Dr. Tightwad? Write to Dr. T at 1729 H St., N.W., Washington, D.C. 20006. Or send the good doctor an e-mail message (and any other questions for this column) to jbodnar@kiplinger.com.

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