Hyden, Miron & Foster, PLLC Law Blog

Sunday, May 21, 2017

My Teen Has a Job - Does He Need to Pay Taxes?

Summer is here and your teen just got a job. As a parent, you’re probably excited for your child. Not only will having a job instill discipline, it will also teach valuable life skills such as hard work, determination and financial responsibility.

Speaking of financial responsibility, you may be wondering whether your teen will now have to pay taxes. It will depend on a number of factors such as the type of job and income earned. Because every job is unique, an Arkansas tax law attorney will be better placed to assess your teen’s individual position so as to determine how much federal and state tax will be owed.

What You Should Know about Taxes on Teens’ Summer Jobs

 

  1. Even Teens Pay Taxes 

    If you are earning income, regardless of your age, the IRS wants its dues. There is no minimum age for paying tax. There is, however, a minimum filing amount. In 2016, for income earned as a result of employment, that amount was $6,300. 

    This means that teens that earned an income below $6,300 did not have to file tax returns. On the flip side, teens that did earn $6,300 and above were required to file tax returns. 

    Their income is usually taxed at a special rate, usually less than 10 percent. 

  2. Teens Can Owe Taxes

    Before commencing employment, your teen will have to fill out a Form W-4. Through this, the employer will know exactly what amount to withhold as income tax. 

    If your teen will not earn more than the minimum amount, it should be noted in the form and your teen can claim exemption from withholding federal income tax. 

    A good rule of thumb is to not claim exemptions. If your teen does not earn above the threshold amount, any withheld income will be reimbursed.    
  3. What if Your Child Works as an Independent Contractor?

    Some employers pay teens as independent contractors so that they do not have to withhold tax or deal with potential employee benefits. Some teens think that such an arrangement means they get to keep more cash. However, that is not always the case.

    Independent contractors have to report earnings to the IRS using Form 1099, meaning they will be treated, for tax purposes, as self-employed individuals. This is where it gets costly. Self-employed individuals pay tax on net earnings in excess of $400. And that’s not all. These earnings are taxed at a rate of 15.3 percent.   

    Your child may not have earned more than $6,300 but as long as net earnings exceeded $400, there’s a tax liability.
  4. What if my Teen’s Income is from Investments?

    The IRS looks at income in two ways: earned income is income from employment while unearned income is income from investments such as interest and dividends. The general rule is that teens should file and pay tax for investment earnings over a certain amount. In 2016, that amount was $1,050. 
  5. Some Jobs Get Special Tax Treatment

    In 2016, teens that offered lawn-mowing and baby-sitting services were viewed as household employees and were not subjected to Medicare and social security taxes. These exemptions also applied for teens that worked as newspaper carriers and vendors. 

Just like their parents, teens’ tax returns have to be filed and taxes paid by April 15.

Tax law can be complex. So complex that even your teen’s earnings can affect your own taxes. Contact an Arkansas tax attorney at Hyden, Miron & Foster, PLLC for answers on how your teen’s job affects the both of you tax-wise.


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