Teen jobs and tax issues

Special rules for some teen jobs

Some young business people, however, do get a bit of a break. There are special tax rules for typical teen jobs.

Individuals who provide baby-sitting and lawn-mowing services are viewed by the IRS as household employees. In these cases, a household employee who is younger than 18 at any time during the tax year the work was performed is not subject to Social Security and Medicare taxes.

The same SE exemption also is allowed for newspaper carriers, distributors or vendors younger than 18.

The family business

Instead of starting a new enterprise, some youths opt to go into the family business. In addition to having the inside track with the boss, this work situation might provide some tax relief for the employing parents, as well as the young worker.

"If you're to employ your own child, there could be no withholding at all," says Thomas J. Casey, a Certified Financial Planner professional with Dean, Casey Financial Management in North Haven, Connecticut.

When a parent's business is unincorporated (that is, it's a sole proprietorship or a partnership), the hiring mom or dad doesn't have to withhold FICA taxes if the youth is younger than 18. Federal unemployment tax payments also aren't required for the child if he or she is under age 21.

However, says Casey, parents who are generous employers will have to withhold income taxes if they pay their teenager more than the filing trigger amount.

Other income issues

Tax responsibilities also can be complicated when a youngster receives earned (work-related) and unearned (investment) income in the same tax year. When a youth receives investment income, that amount also must be added to the youngster's earned income in determining his or her federal filing requirements.

Generally, children age 18 or younger must file and pay taxes on their unearned income when it exceeds a certain amount.

Young investors' 2015 filing trigger

When a youngster's investment income exceeds a certain amount, the youth usually must file a tax return reporting those earnings. For 2015, filing is required on unearned income of more than $1,050.

If a child operates his or her own business, the young entrepreneur must track expenses in order to determine the potentially taxable earnings. The work-related costs will be reported on and subtracted from gross earnings on Schedule C.

Even if the young worker's net isn't enough to require the filing of a 1040, completion of Schedule C will make it clear whether, depending on the teen job, a Schedule SE must be filed to pay self-employment taxes.

And sometimes it pays to file a return. If a child did have withholding taken out of pay but didn't make enough to owe taxes, the only way to get that money back is to submit a Form 1040.

Finally, young business people need to be mindful of their state's tax filing demands, as well as possible sales tax requirements if the enterprise involves retail sales.

The various tax issues that the youngest workers encounter certainly can take some of the thrill out of joining the workforce. But Topp recommends that young workers look at ways the tax system can work for them.

"It's frustrating for the kid and parents to owe taxes, but it's part of being a grown-up and being a business owner," Topp says. "I tell them to plan for taxes when they set their prices."


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