Teens and Income Taxes

Minors do pay taxes if they meet income thresholds

young mechanic fixing some gears on a bike
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The percentage of teens in the United States who are part of the labor force has been on a downward trend since the late 1970s, but plenty of teenagers still earn income in some capacity. The IRS still processes millions of tax returns filed by teenagers as a result.

Despite their youth, teenagers have to pay taxes if they make a certain amount of income, just like everyone else. Teenagers and their parents should know the rules as they apply to young people, as well as how different kinds of income earned by teenagers are taxed.

Key Takeaways

  • Teenagers aren't exempt from income taxes simply based on their age or because they're dependents of their parents or others.
  • The type of income a teenager earns, whether through employment, self-employment, or investments, affects their tax liability and whether they have to file a tax return.
  • Special rules apply to teenagers with investment income.

Minors Do Pay Taxes

There are some age-specific aspects of tax law. Taxpayers age 65 or older at the end of the tax year are generally allowed a larger standard deduction than taxpayers under age 65. But a taxpayer's age in and of itself doesn't exempt them from paying income taxes, at least not at the federal level.

Becoming a centenarian won't get you a free pass from the Internal Revenue Service (IRS), but it will earn you a break from the New Mexico Taxation and Revenue Department which exempts the income of anyone age 100 or older from state income tax.

Who Pays Taxes?

Whether someone has a federal income tax liability depends on how much money they made during the tax year as well as how they made it. It depends on their standard deduction or the amount of their itemized deductions and the amount of any tax credits they might be qualified to claim.

If someone makes money, including a teenager, they’ll generally have to pay taxes on it unless their income is below the threshold amount for their filing status or it's specifically exempt from taxation. This isn’t likely for the most common kinds of income that teenagers generate.

Tax-Exempt Income

Here are some examples of sources of income that aren't subject to federal income taxes:

  • Child support
  • Dividends on life insurance
  • Gifts
  • Reverse mortgages
  • Welfare payments and food stamps

Other than gifts, most teenagers usually don’t have these kinds of income.

Income Below Threshold Amounts

An individual generally won’t have a federal tax liability if they don't have taxable income. The general formula for taxable income is to add up all a taxpayer’s income that's subject to tax and subtract all deductions they're eligible to claim.

Every taxpayer is allowed to subtract at least the standard deduction for their filing and dependency status. They can itemize their deductions instead if the total turns out to be more than the standard deduction they're entitled to claim. The standard deduction amounts for single dependents—which is what most teenagers are for tax purposes—are shown here for tax years 2021 and 2022.

2021 Standard Deduction for Single Dependents 2022 Standard Deduction for Single Dependents
The greater of $1,100 or the dependent’s earned income plus $350 but not to exceed $12,550. The greater of $1,150 or the dependent’s earned income plus $400 but not to exceed $12,950.

A teenager's standard deduction would reduce their taxable income to zero and they would have no ordinary income tax liability if they were a single dependent and made up to $12,950 in 2022.

How Much Tax Will a Teen Pay?

How much tax your teen will pay depends on their tax bracket, as well as the kind of income they earn. Some types of income, such as self-employment income or capital gains, are subject to special taxes or different rates. But ordinary income like wages is subject to the normal tax brackets that are adjusted every year to keep pace with inflation.

This table shows the tax brackets for 2021 and 2022 for single filers.

Tax Rate 2021 Taxable Income (Single Filer) 2022 Taxable Income (Single Filer)
10% $0 - $9,950 $0 - $10,275
12% $9,951 - $40,525 $10,276 - $41,775
22% $40,526 - $86,375 $41,776 - $89,075
24% $86,676 - $164,925 $89,076 - $170,050
32% $164,926 - $209,425 $170,051 - $215,950
35% $209,426 - $523,600 $215,951 - $539,900
37% $523,601+ $539,901+

How Minors Pay Taxes on Employment Income

Employment income earned in the form of wages, salaries, tips, and equivalent sources is taxable.

How Employment Income Is Taxed

Employment income is taxed as ordinary income. The standard tax brackets apply. Employers are generally required to withhold taxes from an employee’s paycheck.

When an employed teenager—or any employed taxpayer—files their tax return, they'll compare their actual tax liability for the year against the amount of taxes they've already paid during the year, such as through withholding from their paychecks. They'll receive a refund if more taxes were withheld than they actually end up owing for the year. They'll have to pay the difference to the IRS if less taxes were withheld than they owe for the year.

It may still be a good idea for a teenager to file a tax return in certain situations even if they're not required to do so. Their employer may have withheld amounts from their wages even though they have no federal income tax liability. Filing a return is the only way to get those income tax withholdings back as a refund.

Social Security and Medicare Taxes

Teenagers must also pay into Social Security and Medicare, the FICA taxes, just like any other employee. The rate is 15.3% as of 2022, of which 12.4% goes to Social Security and 2.9% goes to Medicare. This tax is shared by their employers. Each of them pays half.

How To Fill Out Form W-4

An employer typically asks an employee to complete a Form W-4 when they start a job. The form provides the employer with the information they'll need to figure out how much tax withholding to take out of the employee's paychecks. Filling out Form W-4 is a relatively straightforward task for teenagers who only have one job and no other sources of income. Their personal information is entered in Step 1 and they should sign the form in Step 5.

But they may want to use the IRS Tax Withholding Estimator provided online for guidance if their situation is more complicated. This might be the case if they have multiple jobs, they anticipate making more than $200,000 during the year, have dependents of their own, or they have non-wage income.

Freelancing and Odd Jobs Around the Neighborhood

A teenager is considered to be self-employed for income tax purposes if they make money by providing services apart from formal employment. It doesn’t matter if they spend dozens of hours a week freelancing or if they mow a couple of lawns on the weekends. This is all self-employment income for tax purposes.

Self-Employment Tax

Self-employment income is subject to another kind of tax in addition to regular income taxes: the self-employment tax. This is the full 15.3% of the Medicare and Social Security FICA taxes because there's no employer in place to share the burden. This tax kicks in when a taxpayer has self-employment income of $400 or more during the year.

A teenager may still have a self-employment tax liability and therefore still be required to file a tax return with self-employment income of $1,000 even though they may not otherwise have any regular tax liability because their income is less than the standard deduction amount they're entitled to claim for their filing status.

Self-Employment Income

Self-employment income is net of legitimate deductions that can be calculated on Schedule C and submitted with their tax return. A teenager may be able to deduct expenses such as transportation costs to and from their work locations, as well as the cost of any equipment they purchase for their lawn mowing business if they make money mowing lawns.

When a Minor Has Capital Gains

Of course, not all income is earned income. The following are examples of what the IRS considers unearned income:

  • Interest
  • Dividends
  • Capital gains
  • Rents
  • Royalties

Unearned income is subject to the “kiddie tax" if a teenager or other minor child has more than a certain threshold amount during the tax year. The limited amount of the standard deduction for dependents is $1,150 in 2022. This amount is not taxed.

The next $1,150 is taxed at the child's marginal tax rate. That's their topmost tax bracket based on all their taxable income combined. Unearned income over $2,300 is taxed at the parents' marginal tax rate. Your child must file a tax return if they're liable for the kiddie tax, along with IRS Form 8615.

The Bottom Line

Some specific aspects of the tax code, such as the kiddie tax, apply only to teenagers and to other minors. But teens are taxed like any other taxpayer for the most part. They'll likely have to file a tax return and pay some income tax to the extent that they earn income that's subject to tax and that exceeds their standard deduction or itemized deductions amount, or to the extent that they earn self-employment income of $400 or more during the tax year.

Frequently Asked Questions (FAQs)

Can a minor file taxes if their parents claim them as a dependent?

A minor can and may even be required to file taxes even if their parents can claim them as a dependent. A minor will be able to claim the standard deduction, subject to some limitations.

How much does a teenager typically get back in a tax refund?

There's no “typical” tax refund amount for anyone of any age, and the IRS hasn't reported taxes paid by teens or excesses refunded in several years. But taxpayers can estimate how much tax they’ll owe and what their refund might be by using the IRS tax estimator tool.

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