Teen jobs and tax issues

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Young teen smiling © Minerva Studio/

A summer job is a classic rite of passage for teenagers. But teen jobs can be a source of aggravation for young workers and parents who aren't prepared to deal with the potential taxes.

When it comes to income, the IRS generally wants its cut, regardless of the earner's age. But some special tax rules apply to young workers, based not only on age, but also on amount of money earned and even the type of job.

First, the good news: The teen worker might not owe the IRS a dime.

A youngster who is a dependent of another taxpayer generally doesn't have to file an income tax return unless the youth makes more than the standard deduction amount for a single filer.

2015 tax year standard deduction

The 2015 tax year standard deduction for single taxpayers is $6,300. A dependent youth can earn up to that much and not have to file a tax return.

If a young person doesn't expect to earn more than the threshold amount, he or she needs to note line 7 when filling out a W-4 at the summer workplace. That's where the teen might be able to claim exemption from federal income tax withholding.

In fact, novice workers should pay close attention to all employment paperwork. It could dramatically affect their tax responsibilities.

"Sometimes teens go out and work as technical employees, but are paid as contractors," says Sharon Lechter, a CPA in Paradise Valley, Arizona, and a former member of the inaugural President's Advisory Council on Financial Literacy. "So make sure the employer classifies you correctly."

Pushing the worker categorization boundaries is appealing to some companies who then don't have to deal with various tax withholdings and potential employee benefit payments. And young workers looking to pocket as much cash as possible each payday might think such an arrangement advantageous, too.

But being a contractor poses new, and costly, tax concerns.

Contractor tax complications

If paid as a contractor, which means earnings are reported to the worker and the IRS on a Form 1099-MISC rather than a W-2, the youth is, for tax purposes, self-employed.

That designation means that even if the young worker doesn't earn enough to owe federal income taxes, he or she could owe Uncle Sam self-employment, or SE, taxes.

This is the 15.3% tax on earnings that is the self-employed equivalent to Social Security and Medicare payroll taxes withheld from employees' checks and usually noted as FICA on pay stubs. That tax is required when any self-employed worker's net earnings exceed $400.

"There is no special tax treatment for teenagers running their own business," says Carol Topp, a Cincinnati CPA who is also the founder of "If you make a profit of more than $400, you must pay self-employment."

The frustrating thing about self-employment taxes is that while the income tax earnings threshold usually is adjusted each year for inflation, the $400 SE trigger is firm. And that low level often poses tax problems for young entrepreneurs, even if they don't make enough to mandate they pay income tax on their earnings.

That was the case for one of Topp's daughters. "She offered piano lessons and didn't make enough to file a tax return, but owed $80 in self-employment," says Topp.

Bankrate Audio

Teen jobs and tax issues


The good news is that your teen has a summer job. The not so good, you might feel that come tax-filing season. I'm Mark Hamrick with the Personal Finance Minute.

A summer job can help a young person get a leg up on the career and their finances. But it can also provide an irritating lesson on income taxes. Fortunately, a teen worker might not owe the taxman at all. For the 2014 tax year, the standard deduction for a single taxpayer is $6,200. A youth who's likely also a dependent can earn up to that level without being required to file a return.

The youth will need to take care when filling out the Form W-4 as the gig begins. That's where they can note they believe they're exempt from federal withholding, again, if they expect to earn less than $6,200.

Special, somewhat forgiving rules, apply to workers 17 or younger, including newspaper carriers, those providing household services or working for family business. For more on this and other personal finance issues, visit I'm Mark Hamrick.

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