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Freelancing And Odd Jobs Around The Neighborhood
A teenager is considered to be self-employed for income tax purposes if they make money by providing services apart from formal employment. It doesnât matter if they spend dozens of hours a week freelancing or if they mow a couple of lawns on the weekends. This is all self-employment income for tax purposes.
When Your Teen Needs To File Taxes
Your teen will need to file a tax return if their unearned income was more than $1,100 or their earned income was more than $12,400. They must also file if their gross income was more than the larger of the $1,100 or their earned income plus $350.
Earned income includes salaries, wages, professional fees, and other amounts received as pay for work your teen actually performs. The amount they earn by performing services are included in his or her gross income and not the gross income of the parent. This is true even if under local law you, as the childs parent, have the right to the earnings and may actually have received them. But if the child doesnt pay the tax due on this income, you are liable for the tax as the parent.
Unearned income includes income such as interest, dividends, and capital gains. Trust distributions of interest, dividends, capital gains, and survivor annuities are also considered unearned income. You may be able to include your teens interest and dividend income on your tax return. If you do this, your child wont have to file a return.
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They Can Practice Filing A Tax Return
Preparing a tax return is a life skill just about everyone has to learn at some point. The earlier you file your return, the simpler its going to be, says Bailey. Which is why learning to file a return where, say, your teen made $500 over the summer is probably going to be the simplest return youll ever do. This way, kids begin to know the basics of a tax return. Then, each year you do one, it might be a little more complicated, but youre learning a little bit more as you go, explains Bailey. She says its better to learn now, rather than waiting until their 20s when your kids might also have additional considerations, such as deducting donations or moving expenses to consider. Its like learning to ride a bike, the earlier you can do it, the better, she says.
Do Teenagers Need To File Taxes In Canada
Regardless of age, Canadians are generally required to file a tax return if they earn an amount of money that exceeds the basic personal amount. For the 2021 tax year, that amount is $13,808. Usually a teenager has a summer job or casual work if they earn less than that $13,000, they arent going to be required to file, says Bailey.
Bottom line: if your teen earns less than the basic personal amount, theyre not required to file a tax return.
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Clear View Business Solutions Can Help
Filing tax returns can be confusing at any age. The experts at Clear View know what you need to do and when you need to do it. We can help ensure that you are maximizing your available credits and deductions and minimizing your tax payment. We work with you at tax time and throughout the year to help you be better prepared to make sound financial decisions and to plan for your success. Learn more about how we can help you and your business by contacting Clear View Business Solutions to speak to our team about our services. Give us a call at 544-0177.
How To Fill Out A W4 Form For A Teenager
When your teen starts a summer or part-time job, they will be required to fill out a W4 form. This lets the government know how much, if any, income to deduct for federal and state income taxes.
For the majority of teens this will be quite simple. They will just fill out the personal information section and then sign and date the form at the bottom.
Heres a more detailed walkthrough:
First, fill out the top part where it requests your personal information.
Step 2 only applies if the teenager has other income. This could be income from another job or income from investments. Most teenagers probably only have one source of income so you will most likely be able to move down to Step 3. The purpose of this section to avoid too much or too little taxes being withheld.
You can use the calculator listed in part A to calculate an approximate amount of taxes due from all sources of income. Heres that calculator. Estimate high, its better to get a return than to owe taxes in April.
Step 3 applies only if the teenager has dependents.
Step 4 is where you can ask for extra money to be withheld You may want this if you determined it was needed back in Step 2. If the teenager has no other sources of incomeor if that other income is being taxes appropriately, then this section can be skipped.
All your teen has to do for step 5 is sign and date!
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Teaching Teens About Taxes
When you are working on filing taxes for your teenager, it’s a great opportunity to them about taxes. If your teen has a job, explain that some employers withhold taxes from paychecks and suggest that your teen saves all paycheck stubs for tax time. Have your teen do the tax filing by gathering their paychecks and adding up the withholding. Show your teen where to enter the numbers on the tax forms and how to submit them.
Note that the above is a synopsis of the IRS rules that apply. There are numerous exceptions to these rules, and the IRS is constantly changing them. To be sure you are fulfilling your own and your child’s requirements, confer with a tax accountant familiar with your family. IRS Publication 929, “Tax Rules for Children and Dependents.”
How Employment Income Is Taxed
Employment income is taxed as ordinary income. The standard tax brackets apply. Employers are generally required to withhold taxes from an employeeâs paycheck.
When an employed teenagerâor any employed taxpayerâfiles their tax return, they’ll compare their actual tax liability for the year against the amount of taxes they’ve already paid during the year, such as through withholding from their paychecks. They’ll receive a refund if more taxes were withheld than they actually end up owing for the year. They’ll have to pay the difference to the IRS if less taxes were withheld than they owe for the year.
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Basic Guidelines For Filing A Teen’s Tax Return
There are three factors that determine whether your daughter needs to file a separate tax return. First, look at the IRS criteria for being a dependent:
- She must be under 19, or under age 24 and a full-time student, or permanently disabled at any age
- She must live with you more than 50% of the year and
- She can’t provide more than half of her own financial support.
Second, look at her income. Here’s where it gets more complicated because there are different rules for earned income from a job, unearned or investmentincome from dividends, interest or investment gainsor a combination of both.
And third, she will need to file her own return if her earned or unearned income exceeds certain thresholds.
Is A 16 Year Old Required To File Taxes
Whether or not a 16 year old child will have to complete a tax return is largely dependent on the amount of income they earn in their employment as well as the amount of unearned income they have generated. If they exceed the minimum required threshold as mandated but the IRS, they will have to file a tax return.
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Working In The Family Business
If you or your spouse owns a business, putting your teen to work can give them some valuable entrepreneurial experience and it may even help you to score a tax break. If the business is set up as a sole proprietorship or partnership, youre not required to withhold FICA taxes if your child is under 18.
You also dont have to pay federal unemployment tax if theyre under age 21. Just keep in mind, however, that if you pay them more than the standard deduction limit youll still have to withhold federal income tax.
How Much Tax Will A Teen Pay
How much tax your teen will pay depends on their tax bracket, as well as the kind of income they earn. Some types of income, such as self-employment income or capital gains, are subject to special taxes or different rates. But ordinary income like wages is subject to the normal tax brackets that are adjusted every year to keep pace with inflation.
This table shows the tax brackets for 2021 and 2022 for single filers.
| Tax Rate |
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Unearned Income Over $1150
If a teenager has unearned income over $1,150, either they have to file a tax return, or you can report the income on your own tax return.
Unearned income is mainly from savings accounts and investments. This includes accounts opened by someone else in the teenagers name.
The benefit to reporting unearned income on a teenagers tax return is that they might be in a lower tax bracket .
The benefit to reporting the income on a parents tax return is that its easier not to have to do a separate tax return for them especially when a child is younger.
To report unearned income on a parents tax return, both the child and parent have to qualify.
The child qualifies if they meet all of the following.
- Are under 19 at the end of the year or under 24 if a full-time student
- Have no income except interest, dividends, capital gains, and Alaska Permanent Fund payments
- Have gross income under $11,000
- Have to file a tax return
- Do not file a joint tax return
- Made no estimated tax payments, including tax refunds carried over from the previous year
- Had no federal income tax withheld
The parent qualifies if they meet one of the following.
- File a joint return with the childs other parent
- Are married to the childs other parent, file separately, and have the higher taxable income
- Are unmarried and the child lived with you for most of the year
See IRS Form 8814 for more info.
Teens And Unearned Income
If your child receives income from investmentsthat is, unearned incomein addition to earned income, the amounts must be added together in order to determine the filing requirements. Teens under age 18 will have to pay taxes on unearned income if exceeds a certain amount. In 2020, that unearned income trigger amount is $1,100.
Parents will probably want to file their childs unearned income separately. Adding your teens unearned income to your return requires a separate form8814 Parents Election to Report Childs Interest and Dividendsand it can result in a higher income tax for the parent.
In addition, its important to note that it is illegal for a parent to claim capital gains from the sale of a childs stock. In general, it makes more sense for a childs unearned income to be filed on a separate return.
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When Your Child Should File A Tax Return
Even if your child isn’t required to file an income tax return, it can still be a good idea to file if:
- Income taxes were withheld from earnings
- They qualify for the earned income credit
- They owe recapture taxes
- They want to open an IRA
- You want your child to gain the educational experience of filing taxes
In the first two cases, the main reason for filing would be to obtain a refund if one is due. The others are income-dependent or based on taking advantage of an opportunity to begin saving for retirement or to begin learning about personal finance.
What If My Teen Worked A Side Gig
If your teen worked a side gig, where they were paid as a 1099 contractor instead of as a W-2 employee, they must claim that money on tax returns if the total income exceeds $400. Your teen will need to file a Schedule SE with their 1040 tax form and pay self-employment taxes on that income.
If they earned $600 or more from any single source, your teen should receive a 1099-NEC form from the company that contracted the work. If your teen worked a gig in 2021, it might be wise to speak with a tax expert specializing in small businesses and independent contractors to help calculate any expenses they might be able to deduct from their income to reduce their tax bill.
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Do Minors Have To File Taxes
Minors have to file taxes if their earned income is greater than $12,950 . If your child only has unearned income, the threshold is $1,150 . If they have both earned and unearned income, it is $1,150 or their earned income plus $400whichever is greater. If the minor is self-employed, they will owe self-employment tax when they reach $400 or above.
Heres What Young Entrepreneurs Should Do To Keep On Top Of Their Tax Responsibilities:
Keep records. Its good to make and keep financial records and receipts during the year. Recordkeeping can help track income and deductible expenses and provide the information needed for a tax return.
Pay estimated tax, if required. If a teen or young adult being claimed as a dependent expect to owe at least $1,000 in tax for 2022, they must make estimated quarterly payments. They should pay enough tax on time to avoid a penalty. They can use one of these forms to calculate their estimated taxes:
- Form 1040-ES, Estimated Taxes for Individuals
- Form 1040-ES NR, U.S. Estimated Tax for Nonresident Alien Individuals
If a taxpayer also has a job where their employer withholds tax, they can request that their withholding be increased to cover their estimated taxes from their self-employed income. That way, they dont have to pay estimated tax separately. The Tax Withholding Estimator on the IRS website is a great tool to help wage earners figure out how much they should be withholding.
File a tax return. When tax season rolls around, young taxpayers can review the information and forms, gather their records, and e-file their tax returns. When preparing to file a tax return, they should review all their records, including any estimated tax theyve already paid.
If people owe taxes, they can pay electronically through Online Account and IRS Direct Pay.
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Types Of Income For Dependents
Whether your child is required to file a tax return depends on the applicable standard deduction and how much earned and unearned income the child had during the year.
What is earned income? “Earned income” is income a child earns from working. It includes salary or wages, tips, professional fees, and taxable scholarship and fellowship grants.
What is unearned income? “Unearned income” is investment-type income. It includes taxable interest, dividends, capital gains, unemployment compensation, Social Security benefits, annuities, and distributions of unearned income from a trust.
Helping Your Child File A Tax Return
When it comes to helping your child file their income taxes, you should know the following:
- Legally, your child bears primary responsibility for filing and signing their own income tax returns. This responsibility can begin at any age, perhaps well before your child becomes eligible to vote.
- According to IRS Publication 929, “If a child can’t file his or her own return for any reason, such as age, the child’s parent, guardian, or another legally responsible person must file it for the child.”
- Your child can receive tax deficiency notices and even be audited. If this happens, you should immediately notify the IRS that the action concerns a child.
- According to IRS Publication 929, “The IRS will try to resolve the matter with the parent or guardian of the child consistent with their authority.”
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