Teens and Taxes: How to File, What to Pay & Mistakes to Avoid

The topic of teens and taxes is a complex one. Whether minors need to file taxes depends on many factors, including the type and amount of income and their dependency status. Generally, anyone who receives a paycheck is required to do so; however, whether teens need to file a separate return depends on their individual circumstances.

In this article, we’ll explore when teens need to start paying taxes, what types of income they can earn, and how that income is taxed. Then, we’ll show you how to file taxes as a teenager and explore the possibilities of claiming tax deductions or credits.

Key Takeaways

• Teens need to start paying taxes when they gain more than $14,600 in earned income or more than $1,300 in unearned income in one year.
• They can be taxed on various types of income, including W-2 employment, 1099 contractor work, cash jobs, and some scholarships and stipends.
• When filing taxes as a teenager, first determine whether you need to do it in the first place, then gather the necessary documentation, and finally, fill out and submit your return.
• Teenagers and their parents can coordinate on taxes to minimize their liability and take advantage of some tax credits.

When Do Teens Need to Start Paying Taxes?

There is no clear answer on when teens need to start paying taxes, as that is not determined solely by their age. The main factor that determines when teens need to start paying taxes is how much income they earn.

There are three key instances in which teens have to file taxes, and they are as follows:

• Earned income for a specific work (e.g., wages and salaries) was greater than $14,600 in a tax year.

• Unearned income was greater than $1,300 in a tax year. This refers to money earned through sources such as dividends, interest, capital gains, and distributions from trust assets, among others.

• Gross income (both earned and unearned) exceeds $1,300 in a tax year. Essentially, if a teen has both earned and unearned income, they must file taxes as soon as they earn $1,300, even if their earned income doesn’t reach the $14,600 threshold.

Here are some common scenarios in which teens can earn income:

• Summer or part-time work. If total earnings from summer and after-school jobs exceed $14,600, teens need to file taxes.

• Freelancing. Income from gigs such as tutoring or graphic design is considered self-employment income and can be taxable.

• Babysitting and similar jobs. Even earning cash from jobs like babysitting or lawn mowing is taxable.

Do Teens Need to Pay Taxes for Side Hustles?

Yes, you need to pay side hustle taxes as a teen. The IRS requires anyone (including teens) who made more than $400 in net income from self-employment to file their taxes.

The self-employment tax rate is 15.3% of your net profits; apart from that, you may be eligible for federal income tax or state income tax, depending on how much you earn.

Types of Income Teens Can Earn and How It’s Taxed

Let’s explore the different types of income for teens and see how they are taxed.

#1. W-2 Income

W-2 income refers to traditional employment, and it’s one of the most common types of income for teens, which involves everything from seasonal and part-time jobs to internships.

When you’re hired as an employee, you’ll fill out a Form W-4 and give it to your employer. The employer will then use the information you provide in this form to determine how much tax they need to withhold from your paycheck. This includes federal and state income tax, as well as Social Security and Medicare taxes.

Toward the end of the tax year (typically near the end of January), you’ll receive your W-2 form, outlining your earnings and withholdings. You’ll use this form to file your tax return if you earned more than $14,600 total.

#2. 1099 Income

1099 income refers to earnings from the gig economy and money made as a freelancer or independent contractor. The name stems from the Form 1099-NEC (Nonemployee Compensation), which you’ll receive from every client who pays you more than $600 within one year.

Since you aren’t an employee, you won’t have an employer to withhold taxes from your paycheck. Instead, you’re responsible for paying your own taxes, including both income and self-employment tax.

These 1099 forms for teens will detail your earnings from your clients. You should also keep detailed records of all other earnings and expenses to accurately file self-employed taxes as a teen. Additionally, you typically have to pay at least Social Security and Medicare taxes if you earned more than $400 from self-employment.

#3. Cash Jobs

Cash income from occasional casual jobs, such as babysitting, lawn mowing, and dog walking, is still taxable if you made at least $400 within a tax year.

While you won’t receive Form W-2 or Form 1099 when filing your babysitting income taxes, you’ll still have to keep records of your income. It’s your responsibility to track your earnings and include the relevant information on your teen tax return form.

#4. Scholarships and Stipends

Scholarships and stipends are typically not taxable if you’re a degree candidate. If you’re using the money to pay for your tuition or learning resources (e.g., books, supplies, and school equipment), you generally won’t get taxed.

However, some scholarship and fellowship opportunities are taxable. For instance, if you’re using the funds for your living expenses or to pay for your room, you may be taxed on that income.

How to File Taxes as a Teenager

To file taxes as a teenager, you should follow this procedure, broken down into simple steps:

#1. Determine If You Need to File

Before you begin the process of filing taxes, you should check whether you need to file them in the first place. The requirements aren’t the same if you’re a dependent compared to regular residents.

It’s worth noting that it can sometimes be beneficial to file a tax return even if you made no income or than required. One of the key benefits is that you may be eligible for a refund if taxes were withheld from your paycheck.

#2. Gather the Necessary Documentation

If you determine that you need to file a tax return, you should gather the necessary documentation before you proceed.

Some of the key documents and information you need include:

• Personal information. You’ll need a Social Security Number (SSN) or an individual tax ID number (ITIN) to file your return. Additionally, you’ll need a bank account and routing number if you need to get a refund or pay taxes you owe.

• Relevant forms. This means you must have Form W-2 if you’ve had an employer, or Forms 1099 for other sources of income, including those from your clients if you worked as a freelancer or independent contractor.

• Other records from side jobs and self-employment. This includes bank statements, checks, receipts, and various other records of income and expenses.

#3. Fill Out and Submit Your Return

Once you’ve gathered all the necessary information and documentation, you need to fill it out and submit it to the IRS.

There are several ways to go about this, including:

• IRS Free File. This is a free, fast, and easy method of filing your tax return directly on the IRS website. You should check if you qualify to use it, and even if you don’t, you can still leverage its Free File Fillable Forms.

• Specialized software. There are many tax accounting software solutions and online platforms that allow you to create the necessary documentation quickly and effortlessly. For instance, you can use Paystub.org to generate Form W-2, Form 1099, and other documents and then submit them through the IRS website.

• Tax professionals. If you have a particularly complex case, you should consult a tax professional. However, this isn’t typical for teens filing taxes.

Can Teens Claim Tax Deductions or Credits?

Yes, teens can claim tax deductions and credits even when they are claimed as dependents.Deductions reduce the amount of your income that you’ll be taxed on. For example, self-employed teenagers can deduct the cost of gas for a lawnmower or the cost of materials for babysitting as a business expense, lowering their taxes.

Students can also take a deduction for the interest paid on their loans up to $2,500 per year. Some additional tax credit opportunities worth exploring revolve around education expenses through the American Opportunity Tax Credit (AOTC). However, this often hinges on whether a teenager has been claimed as a dependent, so it’s essential to do the research.

How Parents and Teens Can Coordinate on Taxes

Parents and teens should coordinate on taxes in such a way that they minimize liability and take advantage of certain tax credits.

To be claimed as a dependent, a child needs to meet various criteria regarding age and residency. It’s also critical that they don’t earn more than half of what’s required for their own financial support. Note that a parent can still claim a teen as a dependent even if they have to file their own tax return.

One of the main reasons why parents would claim teens as dependents is to take advantage of credits like the Credit for Other Dependents. However, the teen can’t claim the standard deduction for themselves on their tax return if they are dependents.

How Teens Can Track Their Income with Paystubs.org

Teens can track their income with Paystubs.org by using our software generators to create detailed documentation.

For starters, you can use our pay stub generator to keep your records clean and organized. If you’re a teen with multiple streams of income from side gigs and freelance jobs, you can generate a pay stub for each payment and stay on top of your finances.

Even if these aren’t officially issued pay stubs from your employer, they’ll help you track your earnings and see your total income over any period. When the time comes to file your taxes, you’ll have all the information in one place, which will make it easy for you to report your earnings.

Apart from that, you can also use our invoice generator and take your self-employment efforts to a new level. This way, it’s possible to quickly and effortlessly generate detailed invoices to bill your clients and add a layer of professionalism to your work.

Using these and all the other tools we offer (including our Form 1099 generator and Form W-2 generator) is simple and goes as follows:

• Pick a template that suits your needs.
• Fill in the form by following the provided instructions.
• Review your document and make any final adjustments.
• Check out and download a finished product.

3 Final Tips and Recommendations for Teenagers Filing Taxes

Let’s wrap up this comprehensive guide on teens and taxes with three expert tips:

• Prepare on time. The tax filing deadline is typically on April 15th. You should start your preparations early and gather all the necessary documents and information to prepare for the process. That way, you minimize the risk of filing taxes late and incurring penalties.

• File electronically. Filing taxes online is the most precise and efficient method of submitting your return. If you’re eligible for a refund, you can sign up for a direct deposit and receive your funds electronically, which is much faster than waiting for a paper check.

• Ask for help when you need it. Handling taxes for under-18 teens can be a daunting task. Even experienced businessmen often run into complex situations that require assistance. That’s why you should always ask for help if you’re uncertain. Start by talking to your parents, look up resources online, and even contact tax professionals.

Final Thoughts

Paying your taxes for the first time as a teenager is an important step into the intricate world of finance. It teaches valuable lessons about responsibility, budgeting, earning, and the complexities of the tax system. Therefore, getting familiar with the basics and keeping track of your earnings can help you file your return on time and avoid unpleasant surprises.

Remember to check whether you should pay your taxes for the first time, and if you do, don’t procrastinate when the tax season comes. Prepare on time and file electronically to maximize your efficiency. Lastly, don’t be afraid to ask for help, and feel free to use our generators if you need professional documentation.

Teens and Taxes FAQ

#1. What is the youngest age you can pay taxes?

There is no minimum age at which you start paying taxes, as the primary requirement is based on your earnings. You start paying taxes if you make more than $14,600 in earned income or $1,300 in unearned income, regardless of your age.

#2. How much tax have minors taken out of their paycheck?

The amount of tax minors have taken out of their paycheck depends on the information in their Form W-4. They are subject to the same tax withholding rules as adults, which include a 6.2% Social Security tax and a 1.45% Medicare tax.

#3. Can a 17-year-old file taxes independently?

Yes, a 17-year-old can file taxes independently if they pass the income threshold. Minors have to file taxes, even if they are dependents, after they made over $14,600 in earned income or $1,300 in unearned income.

#4. If I make less than $5,000 a year, do I have to file taxes?

If you make less than $5,000 a year, you don’t have to file taxes unless: 1. You made more than $1,300 in unearned income, 2. You made more than $400 from self-employment or side gigs.