Summer jobs are a rite of passage for many teenagers, offering their first taste of financial independence. But as parents, you may not realize that summer employment can also have tax implications for your child—and even for you. Whether they’re scooping ice cream at the local parlor, lifeguarding at the pool, or babysitting for neighbors, understanding how summer earnings fit into the tax picture is crucial.
This blog will walk you through everything you need to know about handling taxes for your teenager’s summer employment, including filing requirements, common tax forms, and tips to help you confidently manage their earnings. By the end, you’ll have a solid understanding of how to turn this teaching moment into a long-term lesson for your teen.
Tax Implications of Summer Employment
Before your teen cashes their first paycheck, you should know how their earnings may impact taxes.
Income Reporting and Taxable Earnings
Most parents are surprised to learn that, yes, even your teenager may have to pay taxes! While minors often earn low enough wages to avoid a major tax burden, income from summer jobs is still considered taxable under federal law. Generally, teens won’t owe income tax if their earnings are below the standard deduction ($13,850 for single filers in 2023). However, Social Security and Medicare taxes (payroll taxes) typically apply regardless of their earnings.
For example:
- If your child earns $2,000 over the summer, they won’t owe income tax, but they will see deductions for Social Security (6.2%) and Medicare (1.45%) on their paycheck.
- If they take on freelance gigs like tutoring or running a lawn care business, they may be responsible for the self-employment tax (15.3%), even if income tax doesn’t apply.
Filing Requirements for Teenagers
Teens don’t automatically need to file a tax return, so when does it become necessary?
When a Tax Return Is Required
Teens must file a federal income tax return if they meet or exceed specific income thresholds. For 2023:
- Earned Income (e.g., wages from a part-time job): $13,850 or higher.
- Unearned Income (e.g., interest from savings or investments): $1,250 or higher.
- Self-Employment Income (including summer side hustles like babysitting or mowing lawns): $400 or higher.
If your child falls into one of these categories, it’s time to help them tackle their first tax return. It’s also worth noting that filing a return may allow them to claim a refund for withheld income taxes.
Common Tax Forms Teens Might Need
Taxes are full of forms, and it can feel overwhelming at first. Fortunately, summer job earnings only involve a few key documents.
Forms Teens Should Know:
- W-4 (Employee’s Withholding Certificate): Your teen will complete this form when starting a new job to determine how much to withhold for federal taxes. If your teen isn’t earning enough to owe income taxes, they can write “exempt” on Line 4(c).
- Form 1040 (U.S. Individual Income Tax Return): If your teen earns enough to file, they’ll use Form 1040 to report their income. Most working teens can file the straightforward Form 1040-EZ version.
- 1099-NEC (Nonemployee Compensation): If your teen is freelancing or working as an independent contractor, the company hiring them will issue this form instead of a W-2.
Additionally, teens should retain all their pay stubs and W-2s (issued by employers). These documents are essential for accurate tax filing.
Tips for Parents Navigating Tax Considerations
Summer employment is more than a financial milestone; it’s a fantastic opportunity to teach your teen about taxes and financial management. Here are some helpful tips for parents to make this process smooth and stress-free.
1. Teach Them About Taxes
Use this moment to help your teen understand the basics of income tax, payroll deductions, and refunds. Reviewing their paychecks and explaining deductions like FICA (for Social Security and Medicare) can be a valuable life lesson.
2. Encourage Record Keeping
Teach your teen to keep copies of all pay stubs, tax forms, and invoices if they’re freelancing. This will make tax filing easier and help them develop good financial habits.
3. Maximize Refunds
If your teen has had federal income taxes withheld but earns less than the standard deduction, help them file a tax return to claim a refund. Many teens qualify for a full refund of withheld income taxes!
4. Consider Savings Strategies
Encourage your child to allocate a portion of their summer earnings to a Roth IRA. Teenagers often have low tax liabilities, making it an ideal time to begin retirement savings.
5. Offer Guidance for Self-Employment
If your teen is freelancing, babysitting, or running a side hustle, guide them on the self-employment tax requirements. Suggest easy bookkeeping tools or apps to track expenses and income.
Helpful Resources for Teen Taxes
The IRS offers several resources to help parents and teens better understand their tax responsibilities. Here are some helpful links:
IRS Publication 929: Tax Rules for Children and Dependents
IRS Tax Withholding Estimator: An easy tool to determine how much tax to withhold.
IRS Self-Employment Taxes Facts: A guide to taxes for freelancers and independent contractors.
Bookmark these resources to make tax season simpler for you and your teen.
Empower Your Teen to Navigate Taxes Like a Pro
Summer jobs are about far more than earning extra cash. They represent a chance to teach your teenager critical financial skills that will serve them for a lifetime. By understanding the tax implications, filing requirements, and proper forms for their summer gig, both you and your child can enter this phase prepared and confident.
Take this opportunity to turn summer employment into a foundational lesson in financial independence. Start a conversation about savings, budgeting, and even long-term investments like a Roth IRA. With a little guidance, your teen can learn to manage their earnings while you ensure their tax responsibilities are handled smoothly.
Remember, the IRS has resources to guide you through the process, but your knowledge and support can make all the difference for your child’s financial future.