As a teenager, earning money is a significant milestone toward financial independence. However, one crucial aspect that teens must consider is taxes. Similar to adults, teens are obligated to pay federal and state income taxes once their earnings surpass a specific threshold.
Understanding Teen Tax Obligations
Whether you’re a teen with a part-time job, summer gig, or side hustle, it’s vital to comprehend when you become liable for taxes and the process of fulfilling your tax obligations.
Key Points to Remember:
- Teens may need to pay income tax once their earnings reach specific limits.
- The type of income earned can impact tax liability and the amount owed.
- Teens generally do not need to file separate tax returns unless certain conditions apply.
- Different tax rules apply based on earned versus unearned income.
Do Minors Have to File Taxes?
The requirement for minors to file tax returns depends on individual circumstances. While being a minor does not exempt you from tax obligations, it does not always mandate filing a separate return from your parents.
In general, most US citizens and permanent residents must file a tax return if their annual income exceeds a certain threshold. Dependency status and income levels are key factors determining a minor’s tax liabilities.
Dependency Status Guidelines:
Minors classified as dependents on their parents’ tax returns usually don’t have to file separate returns until their income surpasses specific limits.
- Under 19 years of age (or 24 if full-time students)
- Reside with parents at least 50% of the year
- Receive less than half of their financial support independently
Dependents can include children or other qualifying relatives, as long as certain conditions are met.
Meeting the dependent criteria is the initial step in determining the necessity of filing a tax return, followed by assessing the income thresholds. Specific limits dictate when a teen must file their tax return.
Income Thresholds:
The IRS distinguishes between earned and unearned income to determine a minor’s filing requirements.
- Earned income: Includes salaries, wages, tips, and professional fees
- Unearned income: Comprises income from investments, such as interest, dividends, and capital gains
For the 2023 tax year, specific income thresholds must be met to trigger a tax filing requirement for teens based on their earned and unearned incomes.
Parents can claim children over 24 as dependents if they’re totally and permanently disabled.
Filing a Return with a Part-Time Job
Teens working part-time jobs may or may not need to file tax returns, contingent upon their income levels and dependency status. If their income remains below certain thresholds and they are claimed as dependents by their parents, filing a separate return may not be necessary.
However, it could be beneficial for teens to file if their employer withheld taxes, potentially leading to a tax refund.
Teen tax refund could be allocated toward setting up a custodial individual retirement account (IRA) for future financial security.
What Income Isn’t Subject to Taxes?
Certain types of income are not taxable, as specified by the IRS. Understandably, any income included in taxable income is generally subject to tax, unless exempted by law.
Some common examples of non-taxable income include inheritances, gifts, alimony payments, and most healthcare benefits.
Even with taxable income, filing a tax return may not be required if total income remains below the yearly limit.
When a Minor Has Capital Gains
Capital gains, resulting from selling investments at a higher price, can impact a teen’s tax obligations. The kiddie tax may apply to a minor with investments producing capital gains.
Form 8615 is used by parents or teens to calculate the kiddie tax if specific conditions are met. Reporting income on a child’s or parent’s return depends on circumstances and income levels.
If a teen’s income solely derives from capital gains, parents can decide whether to report it on their tax return instead of filing a separate one for the child.
Seeking advice from a tax or financial advisor can help parents and teens navigate the kiddie tax implications effectively.
How to File Your Taxes as a Teen
Filing taxes as a teen is akin to filing as an adult, albeit potentially overwhelming for first-timers. A systematic approach can simplify the tax-filing process.
Step 1: Determine the Need to File
Understanding your income type (earned or unearned) and yearly earnings dictates whether tax filing is necessary.
Completing a Form W-4 for a job should result in receiving a W-2 form from your employer, detailing your annual income.
Self-employed teens or independent contractors will need to self-report their earnings based on the type of income received.
Investment income information is typically provided on Form 1099, tailored to the specific income source.
Step 2: Organize Your Information
When planning to file taxes, gather necessary documents such as Social Security numbers, W-2s, and additional income-related forms.
- Receipts for a side hustle’s expenses may be required for possible deductions.
Step 3: Choose a Tax-Filing Software
Opting for tax software simplifies the filing process, guiding you through the necessary steps efficiently.
The IRS offers free federal tax-filing software, but state returns might involve additional fees.
In certain states, Direct File programs enable free federal tax filing directly with the IRS for eligible taxpayers during the 2023 tax year.
Verify your eligibility for Direct File on the IRS website based on residence.
Step 4: Complete Your Return
Using a tax software program, file your return systematically, ensuring accuracy and completeness.
- Enter personal details, select a filing status, report income, choose deductions, and review for tax credits.
Upon filing your federal return, consider completing your state return, paying any owed taxes promptly to avoid penalties and interest.
Do Minors Get Taxes Taken Out of Their Paychecks?
Employers typically deduct federal and state taxes from teen employees’ paychecks if they completed a Form W-4 at hiring.
How Much Does a Teenager Get Back in a Refund on Their Taxes?
Teen tax refunds depend on various factors, including income levels, filing status, and eligibility for deductions or credits. Using an online tax refund calculator can estimate potential refunds based on reported income.
Do You Have to Pay Taxes When You Turn 18?
Turning 18 doesn’t immediately mandate tax filing but taxable income necessitates filing. The IRS typically requires a tax return when income surpasses a specific limit, potentially leading to missed refunds if not filed.
Do High School Students Have to File a Tax Return?
High school students might need to file tax returns independently if their income exceeds set limits. It’s common for working teens to file jointly with their parents, based on the type and amount of income earned.
The Bottom Line
Navigating teen taxes becomes clearer with knowledge of filing requirements. Parents’ guidance and advance planning for expected refunds can streamline the tax process.