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Taxes for Working Teenagers

Parents of high school students looking for employment while summer is approaching should know some tips to maximize their paychecks.  Typical summer jobs are found at restaurants, local stores, theme parks, hotels and summer camps.  Along with the responsibilities that come with the job is another one: Paying taxes.

Understanding what comes of your paycheck is as important as gathering tax documents when tax season comes along. Not all teens need to file tax returns. If the teenager is your dependent, they may not have to file a tax return if their earned income (salaries, wages, tips, etc.) is under $12,950 (in 2022) or if their unearned income (interest, dividends, unemployment income, etc.) is under $2,200. Even if not required, teenagers may file returns to receive refunds if taxes were withheld during the year.

Another thing to watch out for is how an employer classifies the way your teenager is paid. Some employers hiring temporary help may classify teenagers as contractors rather than as W-2 employees. This means the teenager will get a 1099 form if the income was over $600. This might be interesting to some because no taxes are withheld from their pay. The issue with getting classified as a contractor is that they will have to pay self-employment tax when tax season comes around (if they had net earnings of at least $400).  It is important that they keep track of income and deductible expenses during the year to determine net taxable earnings. Understanding the type of employment is important to avoid unexpected taxes that will arise.

There are special exceptions from self-employment or payroll taxes for teens under the age of 18 if they are considered household employees performing duties as babysitting, lawn mowing, or delivering newspapers. If a family member hires a minor to work in their family business, they don’t have to worry about paying payroll taxes if the minor’s income is under the standard deduction amount ($12,950 in 2022).