NGPF Case Study

Taxes
Spanish version

Case Study Summary National Standards for Personal Finance Education

Description: In this Case Study,

students learn about a teen Earning Income
worker and her first job. She has ● 6b: Identify which level(s) of government typically receive(s)
been told that if she files a tax the tax revenue for income taxes, payroll taxes, property
return, she will be eligible for a taxes, and sales taxes
tax refund. But, her parents ● 7c: Differentiate between gross, net, and taxable income
disagree and won’t let her file. ● 9a: Complete IRS Form W-4
Will she be able to convince
them and claim her refund?
The plot thickens...

Internet Usage: Yes

W-2, W-4, Refunds, Oh My!

Late January, 2024
Susan is terrified. She just received Form W-2 in the mail from her
employer, Eat Well Grocery. She paid hundreds of dollars in federal
and state income taxes. Her friend Ren said she might be able to get
it all back if she files a tax return. She saw on TikTok that she is
required by law to file a tax return. However, her parents are telling
her that she is not allowed to file her own tax return because they are
claiming her as a dependent. Do her parents really want her to break
the law? What is she supposed to do? Let’s start from the beginning...

Let’s go back in time… Early February, 2023

Susan and Ren are both sixteen-year-old high school students, next-door neighbors, and lifelong
friends. They both just got their first jobs bagging groceries at the local supermarket, Eat Well
Grocery.

On the first day of work, Susan and Ren each filled out the standard stack of new employee
paperwork, including tax forms. Susan wasn’t sure how to complete the Federal Form W-4. The
grocery store manager recommended she fill it out as pictured below:

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Exhibit 1 - Susan’s W-4

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Meanwhile, Ren spoke to his father before going to work. His father encouraged Ren to fill out
Form W-4 as he did below. Ren had to review the IRS glossary to understand the term “Exempt:”1

Exempt (from withholding)

Free from withholding of federal income tax. A person must meet certain income, tax
liability, and dependency criteria. This does not exempt a person from other kinds of tax
withholding, such as the Social Security tax.

1
https://apps.irs.gov/app/understandingTaxes/student/glossary.jsp

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Exhibit 2 - Ren’s W-4

Answer This:

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 1. In reviewing the “fine print” of Form W-4 and the definition for Exempt, what three
questions could Ren have asked his father to increase his understanding of his tax
situation?

1. What qualifies someone to claim "Exempt" on the W-4 form?

2. How does claiming "Exempt" affect my paycheck and tax filing at the end of the
year?
3. If my financial or work situation changes during the year, do I need to update my
W-4 form?

2. Who do you believe will receive more in net pay each paycheck, Susan or Ren? Why?

Ren will receive more net pay each paycheck than Susan because he claimed "Exempt"
on his W-4 form, meaning no federal income taxes will be withheld from his paycheck,
leaving him with a higher take-home amount. In contrast, Susan did not claim "Exempt"
and completed Step 4, indicating that federal income taxes and possibly additional
adjustments will be withheld, reducing her net pay.

Later that day Susan asked Ren about the tax paperwork they both completed. After Ren
explained what he did, Susan was totally confused. Here’s the conversation that followed:

Ren: My dad said that because this is only a part-time job I won’t earn enough money this
year to pay taxes. Besides, he also said that since we are currently students, we don’t have
to pay any taxes anyway. That’s why I wrote EXEMPT on the W-4.

Susan: Oh really, my mom is always complaining that she’s paid Social Security tax since
she started working at 16 and that she might never see a dime of it. Do you know what the
salary cut-off is so you don’t have to pay taxes? How much do we need to earn before we
need to start paying taxes?

Ren: I think it’s not until we’re full-time and earning about $25,000 that it matters.

Susan did a little digging and found this reference document from NGPF. She started to make a
list of items she would need to discuss with Ren the next day.

Answer This:
3. After reading the reference document, what are three facts that Susan needs to tell Ren
to clear up his misconceptions about taxes?

Susan needs to clarify to Ren that being a student does not exempt someone from paying
federal income taxes; tax obligations depend on income levels and filing status, not student
status. For the 2024 tax year, a single dependent under 65 must file a tax return if their earned
income exceeds $14,600 or if their unearned income exceeds $1,300—far lower than the $25,000

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threshold Ren mentioned. Social Security and Medicare taxes are withheld from all employees'
paychecks regardless of income level or student status, as they fund future benefits. These facts
will help Ren better understand his tax responsibilities.

Back to Late January, 2024

Let’s revisit our story now and see the W-2 that turned Susan’s life upside down. When the Form
W-2 comes in the mail from Eat Well Grocery, Susan sees lots of boxes, numbers and terminology
she needs to analyze.

Exhibit 3 - Susan’s W-2

Answer This:

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 4. Why is the Form W-2 needed in order to file a tax return? The Form W-2 is essential for
filing a tax return because it provides a detailed summary of an employee’s earnings and
tax withholdings for the year.

5. What is the income number that Susan will likely list on her tax return? Susan will likely
list her Box 1 amount from the W-2 as her taxable income.

6. Which of the taxes listed on her Form W-2 do you think Susan might be able to “get
back?” Susan might be able to "get back" the federal income tax withheld

Susan wonders what she should do with this W-2. She was a little upset at the large amount that
was taken out in taxes, especially after Ren had bragged all year about how he avoided paying
federal income taxes. Susan recalls reading previously that she can possibly qualify for a refund,
and she’d recently seen this graphic that piqued her interest even more:

Exhibit 4 - Graphic

Susan: Mom, can we have a quick conversation about taxes?

Mom: Sure, what’s on your mind?
Susan: I got my W-2 from Eat Well today, and I think I might be eligible for a refund. Did you
know that I paid over $300 in federal income tax last year? I’m going to file a 1040 to get my
money back!
Mom: I don’t think that’s a good idea!
Susan: Why not?
Mom: Well, it gets complicated but the short answer is that if you file a tax return, you may
get YOUR refund but then your dad and I won’t be able to claim you as a dependent and
we will have to pay a lot more in taxes. I don’t want that. Don’t file the return.
Susan: What’s a dependent?
Mom: Let’s continue this conversation later; I have to get some emails out for work now.

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Susan is a bit confused but remembers that she saw something about this in the NGPF reference
document she read earlier. She pulls out the reference document again and starts reading.

Answer This:
7. What should Susan’s three main talking points be to convince her Mom that she should
file her own tax return?
Susan can explain to her mom that filing her tax return doesn’t prevent her parents from
claiming her as a dependent, as long as she meets the IRS criteria, including being a full-time
student under 24, living with her parents for more than half the year, and not providing more
than half of her financial support. Filing her return allows her to claim a refund for the over $300
in federal income taxes that were withheld, which she is entitled to because of her low income.
Additionally, filing her own taxes is an opportunity for Susan to gain essential financial skills and
better understand her tax responsibilities, which will benefit her in the future.

Susan successfully presents her findings to her Mom! Even so, her Mom still questions whether it
is worth the time or the expense for Susan to file a tax return. Her parents typically hire a tax
professional to file their tax return, and they say they will not pay for Susan’s tax return to be filed.
Now Susan has to figure out what to do given this additional hurdle. Once again, her good friend,
the internet, comes to her rescue as she uncovered this IRS link regarding Free File.

Answer This:
8. Does Susan qualify to receive free tax filing software? If so, how?

Yes, Susan likely qualifies to use free tax filing software through the IRS Free File program. The
program offers free online tax preparation and filing services for individuals whose adjusted
gross income (AGI) is $73,000 or less. Since Susan is a part-time worker with low income, her AGI
is almost certainly below this threshold, making her eligible to access and use the IRS Free File
software to complete and submit her federal tax return at no cost.

9. Create a detailed step-by-step checklist for Susan so she can file her tax return for FREE:

Gather All Required Documents:

● Obtain your Form W-2 from your employer (e.g., Eat Well). This shows your income and
taxes withheld.
● Collect any other relevant tax forms (e.g., 1099-INT for interest income, if applicable).
● Have a valid Social Security Number (SSN) or Taxpayer Identification Number (TIN).
● Make a note of your parents' filing information if you’re claimed as a dependent.

Determine Eligibility for Free File:

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 ● Visit the IRS Free File page: IRS Free File.
● Confirm your adjusted gross income (AGI) is $73,000 or less, which qualifies you to use
Free File software.

Susan in a better place

Susan is making progress and now starts to wonder about the size of her refund. She comes
across this federal tax brackets table for the 2023 tax filing year and does some quick calculations:

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Exhibit 5 - Federal Tax Brackets

Answer This:

10. What would you estimate Susan’s federal tax to be based on her income of $7,000 and
the tax rate above?

11. In reviewing her W-2, did Susan pay more or less in federal taxes than your estimate in
question #10?

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WHAT?!?!?! Susan is expecting a refund, but this calculation makes it seem that she actually
OWES more money. How can this be true??? Susan takes a few deep breaths and then
remembers that the NGPF reference document had stated the following:

If you can be claimed as a dependent by another taxpayer, your standard

deduction for 2023 is limited to the greater of:
● $1,250, or
● Your earned income plus $400 (but the total can't be more than the basic
standard deduction for your filing status).

Susan thinks she needs to figure out her standard deduction.

Answer This:

12. Using her wages from the W-2 and the information included in the reference document,
how much is Susan’s standard deduction?
- 903

13. Because her standard deduction is greater than the amount she made, it turns out that
Susan never owed taxes. How large of a refund should she expect from the Federal
government if she follows through on filing her 1040 form?
A bunch

14. If Ren worked the same shifts as Susan and had the same income of $7,000 last year, will
he also need to file a tax return? Support your response.
- No she dosent have to

15. Who do you believe made a better decision when they completed Form W-4, Ren or
Susan? Support your response.

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