Taxes and teenagers

Although the number of teenagers in the United States who are employed has been declining since the late 1970s, many still work and earn money. As a result, the IRS continues to process millions of teen-filed tax returns. Despite their youth, teens who earn a specific amount of money must pay taxes just like everyone else. Teenagers and their parents should be aware of the laws that pertain to young people as well as how various forms of teen income are taxed.

main points

Teenagers aren't exempt from paying income taxes just because of their age or because they are someone else's dependent.
The amount of money an adolescent makes, whether from a job, their own business, or investments, determines their tax liabilities and whether they must file a tax return.
Teenagers with investment income are subject to different regulations.
Taxes Paid by Minors

There are various elements of tax law that are age-specific. The standard deduction is often higher for taxpayers who are 65 or older at the end of the tax year than it is for taxpayers who are younger. However, at least at the federal level, a taxpayer's age in and of itself does not preclude them from paying income taxes. The New Mexico Taxation and Revenue Department exempts the income of anyone age 100 or older from state income tax. Therefore, becoming a centenarian will win you a reprieve from the IRS but not from the Internal Revenue Service (IRS).

Taxpayers are who?

The amount and type of income earned throughout the tax year determine whether a person owes federal income taxes. The amount of their standard deduction, itemized deductions, and any tax credits they may be eligible to claim will all depend on their individual circumstances. Unless their income is below the threshold amount for their filing status or it is expressly exempt from taxation, everyone who earns money, including a teenager, will typically have to pay taxes on it. For the most prevalent sources of revenue that minors produce, this is unlikely.

Expense-Free Income

Here are a few examples of income sources that are exempt from paying federal income taxes:

Parental support
dividends from life insurance policies
Gifts
Reverse mortgages
Food stamps and welfare payments are
Most kids typically don't have access to these types of income, aside from gifts.

Income Below the Threshold

If a person doesn't have taxable income, they often won't owe federal taxes. The usual rule for calculating taxable income is to sum up all of the taxpayer's taxable income and deduct any allowable expenses. Depending on their filing and dependency status, every taxpayer is permitted to deduct at least the basic deduction. If the amount ends up being greater than the standard deduction they are allowed to claim, they may choose to itemize their deductions instead. For the tax years 2021 and 2022, the standard deduction amounts for single dependents—which is what the majority of teens are for tax purposes—are displayed below. 2022 Single-Dependent Standard Deduction

$1,100 or $350 plus the dependent's earning income, but not more than $12,550.1011
or up to $12,950, but not more than the dependent's earned income plus $400.
If a teenager had a single dependent and earned up to $12,950 in 2022, their standard deduction would bring their taxable income to zero and they would not be subject to ordinary income tax.

Taxes a Teenager Will Have to Pay

Your teen's tax rate and type of income will determine how much tax they must pay. Some forms of income, such as those from self-employment or capital gains, are subject to additional taxes or tax rates that are higher. However, regular income, such as salary, is subject to the standard tax brackets, which are updated annually to reflect inflation. The tax rates for single taxpayers in 2021 and 2022 are displayed in this table. 1314 2021 Tax Rate: Taxable Income (Single Filer) Taxable Income in 2022 (Single Filer) 10% $0 - $9,950 10% $0 - $10,275 One in twelve. $9,951-$40,525 $10,276-$41,775. 22,7 percent $40,526-$86,375 $41,776-$89,075. 24 percent $86,676-$164,925$89,076-$170,050 33 percent $164,926-209,425 $170,051-$215,950 three fifths $209,426-$523,600$215,951-$539,900 38 percent $523,601+ $539,901+ How Minors Pay Taxes on Income from Employment It is taxed to receive income from employment in the form of wages, salaries, tips, and other such sources.

Taxation of Employment Income

Income from employment is subject to regular income tax. The regular tax rates are in effect. Taxes must typically be deducted from an employee's paycheck by the employer. Any taxpayer who is employed will compare their actual tax liability for the year to the amount of taxes they have already paid throughout the year, such as through withholding from their paychecks, when they submit their tax return. This is true for employed teenagers as well as other taxpayers. If more taxes are deducted than they ultimately owe for the year, they will get a refund. If fewer taxes are withheld than they owe for the year, they will be required to pay the IRS the difference. Even if it's not compulsory, it may still be a good idea for a kid to submit a tax return in some circumstances. Even though they owe no federal income taxes, their employer may have deducted money from their pay. The only way to receive a refund of those income tax withholdings is to file a return.

Medicare and Social Security taxes

Like any other employee, teenagers are required to contribute to FICA taxes such as Social Security and Medicare. By 2022, the rate will be 15.3 percent, with 12.4 percent going to Social Security and 2.9 percent going to Medicare. Their employers contribute to this tax as well. They each contribute half.

How to complete the W-4 form

When an employee starts a job, an employer often requests that they fill out a Form W-4. The form offers the information the employer needs to calculate the amount of tax withholding to deduct from the employee's paychecks. For kids who just have one job and no other sources of income, completing Form W-4 is a fairly simple procedure. They should sign the paper in Step 5,after providing their personal information in Step 1. But if their circumstances are more difficult, they might want to seek advice from the IRS Tax Withholding Estimator, available online. This might be the case if they have many jobs, expect to earn more than $200,000 per year, have their own dependents, or get income other than wages.

Freelancing and other small jobs in the area

If a child earns money from services other than official employment, they are regarded as self-employed for income tax purposes. It doesn't matter if they work numerous hours each week as a freelancer or just a few hours on the weekends. For tax reasons, this is all considered self-employment income.

Tax on Self-Employment

In addition to conventional income taxes, self-employment income is also subject to the self-employment tax. Due to the absence of an employer to split the load, the 15.3% FICA taxes on Medicare and Social Security are being paid in full. If a taxpayer earns $400 or more through self-employment during the course of the year, this tax becomes applicable. Even though they may not otherwise have any normal tax liabilities due to their income being smaller than the standard deduction limit for their filing status, an adolescent may nevertheless have a self-employment tax liability and be obliged to file a tax return if they have self-employment income of $1,000.

Income from Self-employment

Income from a self-employed person's business is taken out after any allowable deductions, which can be calculated on Schedule C and included with their tax return. If a youngster earns money mowing lawns, they may be eligible to write off charges like transportation to and from their jobs as well as the price of any equipment they buy for their lawn-mowing business.

If a Minor

Naturally, not all revenue is earned. The IRS lists the following as examples of unearned income:

Interest
Dividends
monetary gains.
Rents
Royalties

If a minor child or teenager earns more than a specific sum during the tax year, they are subject to the "kiddie tax." In 2022, the standard deduction for dependents is only allowed to be up to $1,150. There is no tax on this sum. The subsequent $1,150 is subject to tax at the child's marginal rate. Based on their total taxable income, that is their highest tax bracket. Over $2,300 in unearned income is subject to tax at the parent's marginal tax rate. If your child is subject to the kiddie tax, they must file a tax return together with IRS Form 8615.

The conclusion

Teenagers and other minors are the only groups to which certain specific provisions of the tax legislation, such as the kiddie tax, apply. However, for the most part, teenagers pay taxes just like everyone else. If their taxable income exceeds their standard deduction or itemized deductions limit, or if they have self-employment income of $400 or more during the tax year, they'll probably need to file a tax return and pay some income tax.

Questions and Answers (FAQs)

If their parents list them as a dependent, may a minor file taxes?

Even if their parents can list them as a dependent, a minor can still file taxes and can even be forced to do so. There will be some restrictions on how a minor can use the standard deduction.

How much of a tax return does the average adolescent receive?

No one of any age has a "typical" tax refund amount, and it has been a while since the IRS reported taxes paid by minors or overages reimbursed. However, utilizing the IRS tax estimator tool, taxpayers can anticipate their potential tax liability and refund amount.