Do Minors Have to Pay Taxes? Teens & Tax Duties Explained

The answer to the ‘Do minors have to pay taxes?’ question is yes, they do, for as long as they have a job that pays them a gross income that exceeds the current tax year’s standard deduction.

The standard deduction is a specific dollar amount that lowers the income amount on which taxes are levied on taxpayers’ earnings. That said, the IRS does not really use their taxpayer’s age as a basis in determining whether to impose taxes or not.

As long as you earn income and meet the conditions for levying federal and state income taxes, then you must file your returns. So, if you’re a parent to a teenager or a working teen, this article will serve as your perfect guide to figuring out how tax rules work for minors. Let’s begin!

Key Takeaways

• The answer to the ‘Do minors have to pay taxes?’ question is yes, provided that their earnings exceed the standard deduction for individual taxpayers, which is $14,600.
• The taxes that a minor owes also depend on whether they make earned, unearned, or self-employment income. Their dependency status also affects their tax situation.
• The Kiddie Tax, or unearned income taxation, is a type of tax levied on a minor’s unearned income worth more than $2,600.

Do Minors Have to Pay Taxes?

Yes, minors do have to pay taxes, particularly if they work and earn more than $14 600, which is the standard deduction set by the IRS. At the same time, if a minor or child is self-employed and earns more than $400, then they must file taxes.

The IRS will also consider the type of income that your teenage child receives and their dependency status in assessing the amount of taxes to levy on their earnings.

Here’s a closer look at the two main factors that determine the scope of a minor’s tax obligations:

Dependency Status

If a minor qualifies as a dependent on the tax returns of their parents, then they are not required to file another tax return.

A teenager is considered a dependent if they are below the age of 19 and live under the same roof as their parents for more than half of the year. If they live with their aunt, uncle, or grandparents, the guardian they are living with can claim them as their dependent.

Minors are also considered dependents if they:

• Do not contribute more than half of the financial support they receive, meaning that the majority of their financial support comes from their parents
• Are unmarried
• Are either a US citizen, national, or resident, or a resident of Mexico/Canada
• Are either adopted children, stepchildren, siblings, step-siblings, half-siblings, or a qualified foster child

The only time that a minor who is also a qualifying dependent must file a separate return is if their income exceeds the standard deduction and other income thresholds set by the IRS.

Income

If you’re asking yourself: ‘Do minors have to pay taxes on all types of income?’ the answer is—it depends, as the IRS categorizes a teen’s earnings as either earned or unearned income.

Earned income refers to the money generated or made from working a full-time or part-time job. It includes wages, tips, salaries, and any other type of compensation paid in exchange for work that is done.

Now, you might be wondering, ‘What is unearned income?’. Unlike earned income, unearned income is money made through investments, such as dividends, capital gains, royalties, and interests.

Minors who receive over $2,600 in unearned income are subject to unearned income taxation, or the kiddie tax. Parents can use Form 8615 to help their children calculate the taxes they owe.

If their unearned income does not exceed $13,000, they may include their dividends, interests, and capital gains on their parent’s tax returns.

What Income is Not Subject to Taxes?

Not all types of income are subject to federal or state taxation. In general, taxable income includes wages, salaries, self-employment earnings, dividends, royalty and rent payments, interests, and commissions.

Non-taxable income is any earnings that are exempted by law from taxation. Some of the most common examples of non-taxable earnings are:

• Welfare payments
• Payments in child support
• Alimony (only applicable to divorce decrees that have been finalized after the year 2018)
• Gifts and inheritance
• The majority of healthcare benefits
• Reimbursements from eligible adoptions

Minors & Capital Gains

Capital gains are any short-term or long-term increase in an asset value, such as investments, stocks, and bonds.

When any of the previously mentioned capital gains are included in a taxpayer’s annual income report, it is considered unearned income. In that regard, minors have to pay taxes, particularly the so-called kiddie tax, on their mutual funds or stocks that generate capital gains.

The said tax also applies to royalties, dividends, IRA distributions, taxable interest, and taxable Social Security benefits paid to a teenager or minor.

Understanding How the Kiddie Tax Works

The kiddie tax was established under the 1986 Tax Reform Act to keep parents from attempting to reduce their tax rates by transferring a hefty portion of their unearned income to their children’s accounts.

When it comes to levying the kiddie tax, taxes are not levied on the first $1,300 of a child’s unearned income. However, they are levied following the child’s rate on the next $1,300 of their dividends, interests, or capital gains.

Meanwhile, if a minor’s unearned income exceeds $2,600, then their earnings will be taxed at their parent’s tax rate. Parents can also report their child’s unearned income on their returns instead and use Form 8814 to do so.

How Much Does a Teenager Get Back in Taxes?

Teenagers don’t usually get anything back in taxes unless they pay more taxes than they owe for the tax year. When that happens, they may be entitled to claim a tax refund.

The chances of getting tax refunds are also based on whether a minor is claimed as a dependent on their parent’s tax returns. If that is the case, then teenagers may not qualify for an exemption for themselves.

On the other hand, if a teen is an undergraduate student at a university or college, they may qualify for the American Opportunity Tax Credit (AOTC). To qualify, they must not be claimed as dependent by their parents, and they must also shoulder their schooling expenses.

Undergraduate students are eligible for the AOTC for four years provided that they are enrolled in an undergraduate program for at least half-time of at least one academic period.

Now that we’ve explained the conditions that help determine whether minors have to file taxes, let’s see what steps minors have to complete to file their taxes.

How to File Taxes as a Minor in 5 Easy Steps

Filing taxes as a minor can be daunting, especially if it is your first time doing so. That said, here are the five essential steps to serve as your tax filing guide:

#1. Determine Whether You Need to File Taxes

The first thing you need to consider before filing your taxes is whether you need to file taxes or not. Remember, minors have to pay taxes if their earned income or unearned income exceeds the standard deduction or income thresholds set by the IRS.

Should your income amount make you eligible to pay taxes, you must fill out a Form W-4, just like any other regular employee would. Your Form W-4 will provide your employer and the IRS with your personal and income information.

There are also other factors that make filing taxes a must. These factors include qualifying for earned income credit or having an interest in opening your own IRA (individual retirement account).

#2. Gather the Necessary Information

If you need to file taxes, you first must gather the necessary information, including:

• Social Security number

• Form 1099-NEC if your earnings are from freelancing work or self-employment

• Form 1099-MISC if you were paid more than $10 in royalties or at least $600 in rent payments, awards, or prizes

• Form 1099-DIV if you made at least $10 in dividends and interests (investment income)

• Form 1040 and Schedule C if you earn self-employment income that exceeds $400

• Form W-2 if you earn money from a full-time or part-time job

#3. Use a Tax-Filing Software

Figuring out your taxes on your own and doing the tax math manually can be quite challenging. That is why using tax-filing software would be a good call—it should give you all the assistance you need to ensure you calculate or estimate your taxes more correctly.

If you are unsure of which tax-filing software to use, you can use the IRS Direct File program to file your federal returns on the IRS website. Note that the Direct File program is currently limited to 12 states.

Alternatively, you can also check the IRS’ list of free-to-use tax filing software on their website.

#4. Use a Paystub or W-2 Generator

Paystub.org’s online pay stub generator and W-2 form generator are useful tools that will help you record your income throughout the tax year and ensure you file your taxes on time.

Our pay stub and W-2 form generators have ready-made templates that you can easily fill in with all the necessary information about your earnings and taxes.

You can also take advantage of the built-in calculator to save time and effort in calculating your gross pay as well as in estimating and deducting your taxes.

Don’t forget to preview your pay stub or Form W-2 and check that all inputted information is correct before downloading or printing a copy of the document you need.

#5. File Your Taxes

When filing your taxes, remember to do the following:

• Specify your filing status.

• Enumerate and report all income you received for the tax year, regardless of whether you made earned income, unearned income, self-employment profits, or all of the above.

• Check if you qualify for specific tax credits. You can consult your parents or use the tax filing software to help you determine how to apply the tax credits that you’re eligible to use.

• Opt for a standard deduction when choosing which type of tax deduction to apply to the taxes you owe. However, if you own a business and want to deduct or write off several office or business expenses to reduce your taxes, then you can choose to itemize your deductions instead.

Final Thoughts

And there you have it! Now that you know the answer to the ‘Do minors have to pay taxes?’ question, you’ll be able to calculate and file your taxes like a true professional.

Understandably, the topic of taxes and filing returns isn’t as enticing for students and teens, considering how technical it can be. The only tax-related queries they probably have in mind are ‘What age do you start paying taxes?’ or ‘What are taxes?’.

Still, it is never too early or too late to learn about how taxes work. The earlier you get acquainted with how to file your returns, the less likely you will feel intimidated or confused by all the different IRS regulations.

Do Minors Have to Pay Taxes FAQ

#1. Do minors get taxes taken out of their paychecks?

Yes, federal and state taxes get taken out of a minor’s paychecks. Minors do have to pay taxes if their earnings exceed the IRS’ standard deduction or income thresholds.

#2. Do high school students have to file a tax return?

High school students do not have to file a tax return unless they make earned or unearned income that exceeds $14,600 or $1,250.

#3. Does a minor have to pay Social Security or Medicare taxes?

Minors have to pay taxes for Social Security or Medicare if they earn over $400 in self-employment earnings. The combined Social Security and Medicare tax rates for independent contractors is 15.3%. It is also referred to as the self-employment tax.

Minors who earn tips must also file the said taxes, regardless of whether their gross tip income is less than the minimum income threshold.

#4. What are examples of tax deductions and credits for minors?

Some examples of tax deductions and credits for which minors may qualify include:

• Adoption tax credit
• Child tax credit
• Education tax credits
• Dependent exemption
• Medical and dental expenditure
• Retirement savings contributions

These tax deductions are beneficial for minors who have to pay taxes because they significantly reduce the amount of taxes they owe.