5 essential tax tips for teenagers

Editor’s Note: As a young adult, it’s never too early to better understand tax tips for teens! If your teen earned a paycheck from a summer job or an after-school gig, be sure to go over these teen tax tips to kick off the family discussion about teen taxes.

The summer job is a rite of passage for many teenagers. And many teenagers find out the hard way that paying taxes is a regular part of life.

Teen taxes: Where to begin

As you gather tax documents to file your own taxes, don’t forget to consider whether or not your teenager owes money to the IRS as well.

Do teenagers have to file taxes?

So, do teenagers have to file taxes in all cases? Generally, if a teen is a dependent of another taxpayer, they don’t have to file a return if:

• Unearned income (such as interest and dividends) is over $1,100
• Earned income is over $12,200, or
• Gross income is more than the larger of $1,100 or earned income up to $11,850 plus $350

Check the total earnings for the year to see if they are below the standard deduction amount. If they are, filing taxes as a teenager might not be necessary. However, teenagers may need to file to get a refund of their tax withholdings for the year.

Understand the teen’s employee designation

Pay attention to the way your teenager is classified by their employer. Some smaller employers like the idea of hiring summer help as contractors, rather than as “regular” W-2 employees. Contract workers can come with less paperwork and fewer tax complications for the employer.

Teenagers might also find this arrangement attractive because they don’t see withholdings from their paychecks. When a teen is a W-2 employee, payroll taxes, and even federal taxes, can be withheld from the paycheck. The fact that federal taxes often come back as a refund rarely registers with teenagers.

An employer will provide the contractor with a 1099 tax form showing the amount paid to them rather than the W-2 that is provided to an employee.

Unfortunately, being a 1099 contractor can come with extra headaches at tax time. A teenager who makes more than $400 as an independent contractor has to pay self-employment taxes. So, even if your teen doesn’t make enough to owe federal income taxes, he or she will have to file a return and pay self-employment tax.

Consider the implications of different types of employee classification and realize what seems like a good idea for a summer job might not be as attractive come tax time.

Special rules about taxes for minors

Taxes for minors have some special cases – related only to teenagers doing certain jobs.

Household employees

Household employees under the age of 18 don’t have to worry about payroll or self-employment taxes, unless they are in the trade or business of that job. This means that there are exceptions for jobs that include mowing lawns and babysitting. Those under 18 can also get a self-employment tax exemption if they deliver newspapers.

Family business

It’s also worth noting that 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. But, once again, you need to be careful. Even in the family business, once you pay your teenager enough to hit the standard deduction for filing, everything changes and withholdings become important.

The kiddie tax

Many parents like to teach their children the importance of investing. However, unearned income for teenagers is subject to different rules than earned income — just like it is for adults. If your teen’s investment income reaches a certain level ($1,100), he or she has to file a tax return and report.

Income above that level is taxed at the ordinary income and capital gain rates of estates and trusts.

Teen taxes: Don’t forget state obligations

Finally, even if you or your teen is covered with regard to federal taxes, it’s important to remember that each state has its own income tax rules and requirements. Don’t forget to look into your state’s individual tax law, and make sure that your teens taxes are taken care of on all levels.

Taxes for minors may be one of the many facets of your overall tax picture – but it’s an important one.

Whether you make an appointment with one of our knowledgeable tax pros or choose one of our online tax filing products, you can count on H&R Block to help you get back the most money possible.