Teens & Taxes: My Teenager Has a Tax Bill — Now What?
If your teen worked as a 1099 independent contractor or a W-2 employee and earned more than the standard deduction of $12,550 for 2021, they will need to file federal income tax returns. Depending on your teen’s deductions if they file as self-employed, or their withholding taxes if they worked as an employee, you might discover they owe money to the IRS.
If your teen already completed their tax returns and now has a tax bill, don’t panic. Even if you already filed the return, the tax bill does not have to be paid until Tax Day, which falls on April 18 this year (or April 19 for residents of Maine or Massachusetts), according to the IRS. So, if your teen already filed their taxes, your family still has some time to save or earn the money required and decide if you want the teen to take on their full tax burden themselves or help them out.
First, let’s cover how to pay a tax bill by the due date. Then, we’ll dive into possible steps to take if your teen can’t cover the amount owed.
How Your Teenager Can Pay a Tax Bill on Time
The IRS makes it easy for your teen to pay their tax bill directly from your bank account by choosing the “Direct Pay” option at IRS.gov/payments. Direct Pay goes down each night between 11:45 PM and midnight from Monday through Saturday and from 11:45 PM to 7 AM on Sundays, but should otherwise be accessible.
If you use Direct Pay, you’ll receive a confirmation number via email. Keep in mind that IRS Direct Pay will not email you unless you’ve requested the service.
Your teen can also use a credit card, debit card or digital wallet such as PayPal, Click to Pay, or Pay With Cash to pay their tax bill online through the IRS website. However, there are fees associated with credit card or debit card payments. If your teen uses a credit card, fees range from 1.87% of the transaction, with a minimum fee of $2.50, up to 1.98% of the transaction with a minimum fee of $2.50. The cheapest debit card option costs $2.20.
Your teen also has the option to mail in a payment, although this is the least secure method and there is a risk of the check or money order being lost in the mail. If time is of the essence to beat the IRS tax deadline, your teen can also pay via same-day wire transfer. Fees may apply and will vary depending on the financial institution.
What if Your Teen Can’t Pay Their Tax Bill by April 18?
If your teen was caught off-guard by a tax bill, they might need some help. If they can’t earn or save the required funds by the April 18 deadline, you may opt to help them out. After all, withholding taxes are confusing, and they might not have realized that their employer didn’t take out enough money throughout the year to cover federal income taxes.
You can offer your teen a loan and then pay their taxes using any of the methods outlined above. Or you can pay the tax bill, and then work with your teen to help them set aside money for taxes next year so they are not caught unprepared.
If your teen earned money on Form 1099-NEC as an independent contractor and filed taxes on their own or with your help, you might want to have a tax professional specializing in self-employed taxpayers review the tax returns. There may have been deductions you missed that could reduce their tax liability. Your teen might also consider paying quarterly estimated taxes if they continue to work as a 1099 contractor in 2022.
Payment Plans and Installment Agreements: What Happens if You Can’t Pay the Bill for Them?
If neither you nor your teenager can afford to pay a surprise tax bill by April 18, 2022, it’s still important to file the tax returns on time. If your teen owes the IRS money and doesn’t file by the deadline, they will face hefty penalties of 5% of the tax owed for each month, up to a maximum of 25% of the total amount due. If the return is filed more than 60 days late, the penalty will be the lesser of $435 or 100% of the tax owed.
On the other hand, the penalty for failing to pay taxes, as long as returns are filed on time, is just 0.5% of the tax owed, up to 25% of the total amount.
If your teenager owes less than $5,000, they can apply for a short-term payment plan of up to 120 days. If your teen eliminates any unnecessary expenses and continues working, hopefully you’ll be able to scrape up the necessary money within four months. They might even consider taking a full-time summer job.
If it’s not feasible to pay the taxes within four months, your teen can request a longer term monthly payment plan or installment agreement, according to IRS.gov. A $149 fee will apply, but payments could drop to as low as $31 per month through direct debit.
A tax bill is no reason to panic. Filing on time and communicating with the IRS to find a solution is important. There’s no reason that a tax bill should hurt your teen’s financial future as long as you take action right away.
More From GOBankingRates