Your Teenager Might Owe Taxes This Year — 4 Reasons Why (and Why Not)
Written by
Adam Palasciano
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Entering the workforce as a teenager is a great way to learn discipline and hard work outside of school and provides a transition to full-time work post-graduation. However, getting a job no matter what age comes with tax obligations. That means, your teens might have to file taxes too.
How To Know If Your Teen Needs To File Taxes
According to Tax Slayer, whether or not you have to file taxes depends on how much money you earn in a given year and what the IRS’ standard deduction is for that year. Generally, anyone under the age of 65 and single who earns an income is required to file taxes each year.
If you earn less than the standard deduction amount, your employer may still withhold money from your paycheck for taxes. If that’s the case, your teenager might be owed a refund — but they have to file a tax return to get the refund.
If a teenager is claimed as a dependent on your tax return, they’re required to file a tax return once their income exceeds their standard deduction. For tax year 2023, TurboTax explains that this is the greater of $1,250 or the amount of earned income plus $400 up to the full standard deduction of $13,850. The IRS also requires that you indicate if your child is claimed as a dependent on your tax return.
4 Things To Know About Teen Tax Filing
Here are four things to know about your teen’s tax liability this year:
- They Could Be Considered A 1099 Contractor Or A W-2 Employee: Depending on your teen’s employment situation, they could be considered a contractor or an employee. If they work seasonal, short-term jobs (such as working at a summer camp), they’re probably designated as a contractor. In this case, they’ll be issued a 1099 tax form and required to pay income taxes on their annual income come tax day. If they work a more regular job, such as a year-round clerk in a grocery store or a barista in a coffee shop, they’re probably considered an hourly employee. If this is the case, they’ll be issued a W-2 tax form and their taxes will already be withheld year-round.
- There Are Several Tax Exemptions For Teens Under Age 18:
- Household Employees: If your teen does jobs at home like mowing the lawn and they’re paid for it, they don’t have to worry about payroll or self-employment taxes thanks to the self-employment tax exemption.
- Family Business Employees: You can hire your child under the age of 18 for work in your sole proprietor family business and you don’t have to worry about payroll taxes. However, once your teen earns more than the standard deduction, they will owe income taxes.
- Kiddie Tax: This tax rule applies to unearned income over $1,100, such as dividend payments from stocks. A tax return is required in this case. Income above that level is taxed at the ordinary income and capital gain rates of estates and trusts.
- They Still Have To Pay State Income Taxes: In addition to federal income obligations for income over a certain amount, state and sometimes local income taxes (depending on where you live) are also owed.
- They Still Have To Pay Taxes For Side Jobs If They Earn Over $400: If your teen does side jobs for other people, like babysitting or dog walking, and they earn over $400, they’re considered self-employed in the eyes of the IRS. So they’ll owe self-employment tax on their income. However, they can take deductions for expenses related to their job. For example, if they use a car to drive to and from their babysitting job, they’ll be able to deduct mileage expenses from their taxes, thus reducing their tax liability come tax day.
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