Teens and Income Taxes (2024)

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.

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)