It is ever so common for teens to take up jobs over the summer to earn some money or further their careers. Generally, working teenagers are subject to almost the same laws as adults concerning pay and working conditions. So, what about their taxes? In this article we shall answer the question does my teenager need to file taxes for a summer job like adult professionals or entrepreneurs?
In most cases, the money that a teenager earns from working summer jobs is taxable. However, they only need to file taxes if they work specific jobs or earn more than $12,550 in gross annual income. As a parent, you want to help your teens with managing their income and filing their taxes.
When Should teenagers File Tax Returns:
When Working as an Employee in a Company
Like every other person, if a teen gets a job in a company, they might be required to fill out a W-4 form which states how much their tax withholding would be, based on their income.
However, it would only be mandatory for them to file taxes if they earn up to the standard single filer deduction rate (at least $12,550) in gross income during their time in the company.
For example, a teenager will not have to file a tax return if their total earnings during the summer amount to only $10,000. This does not imply that they should not file taxes though.
As long as they filled out a W-4 form, they can still file taxes because it could be helpful in the future if they need their tax records for anything. Teenagers will be entitled to a tax refund if they pay more than required.
Working Side Gigs/As an Independent or 1099 Contractor
It is also very common today for teenagers to take up freelancing or side jobs over the summer.
This includes working online or doing jobs like delivery driving. The tax rules for freelancing and side gigs are different from working as a W-2 employee. For these jobs, the person works as an independent contractor. So, they may need to handle taxes by themselves.
Teenagers that work as independent contractors are subject to self-employment tax. You will be required to file tax returns if you earn at least $400 in net income.
Some organizations issue 1099 forms to independent contractors if their income exceeds $600. The current rate paid for self-employment tax is 15.3% of the net income.
Apart from the self-employment tax, a teenager will also be subject to federal income tax if they earn higher than the deduction rate.
Taxable Unearned Income
Unearned income refers to any money one gets outside income from employment or personal businesses. This could include dividend payments, lottery winnings, or gifts. Unearned income has different rules than earned income for taxing.
Tax rules for unearned income apply to children less than 18 years old or dependent full-time students less than 24.
A teen will not be taxed for the first $1,150 of unearned income. Subsequently, they will be taxed at their marginal rate for the next $1,150 they get. If their unearned income is more than $2,300, it is subject to the marginal tax rate of the parents.
Teenagers Avoid Paying Taxes
Working teens can avoid paying taxes in these two cases.
- When their total income from employment is not up to the standard deduction.
- When the teen is claimed as a dependent. You can qualify as a dependent if you meet these criteria:
- You are less than 19 years old,
- You are a full-time student less than 24 years old,
- You are permanently disabled at any age.
Dependents without any disabilities can still be taxed if they earn enough to provide for themselves. To qualify, a teen must not provide more than half of their income themselves. They must also live with their parents for more than six months in one year.
You should note that teenagers can still be taxed for unearned income, even as dependents.
Teenagers Get Tax Refunds
The criteria for receiving tax refunds as a teen is no different from how working adults receive them. Teenagers are entitled to tax refunds when they pay more than necessary in withholding taxes.
A teen will need to set up a bank account in their name so that they can get their tax refunds through direct deposit.
Taxes can be confusing for teenagers, especially when it is their first time dealing with filing taxes.
This is why parents need to assist them with filing their taxes. You can also consider using various tools and consulting professionals to help you with your taxes and reduce tax liability.