Teens and minors get taxes taken out of their paychecks like any other worker. Employers must take taxes out of employee checks regardless of their age. The taxes withheld are paid into programs like Social Security and Unemployment Insurance.
The total amount withheld from your check differs depending on your pay and the number of dependents you claim. If you are a minor with no children, you can only claim one dependent.
However, you may want to claim zero dependents so your employer deducts the most money if you are going to file a return at the end of the year. If you are working a contract or cash job, the earnings thresholds for mandatory filing are much lower. So, we created a guide to help you navigate teen taxes.
You will learn when teens have to file a return when employers deduct taxes, and other valuable information to help you determine whether you can still claim your child on your taxes or if they need to file an individual tax return at the end of the year.
What Taxes Do Employers Withhold from a Teen’s Paycheck?
Employers withhold the same percentage of taxes for each employee. Employment taxes include several separate withholdings that go to different entities and cover different employment benefits.
Federal Income Tax
Employers have to deduct federal income tax from each regular employee’s paycheck. The federal income tax rate depends on your earnings and it can change from year to year.
Most employers use a payroll company that calculates tax withholdings. However, some smaller shops may use IRS-published income tax withholding tables. These tables tell the employer the tax rate to collect from each employee.
Social Security taxes make up the largest tax withholding category. Both employees and employers pay 6.2 percent in Social Security Old Age, Survivors, and Disability Insurance (OASDI). Self-employed people have to pay the employee and employer portions of OASDI for a total Social Security tax of 12.6 percent.
Employers and employees both pay 1.45 percent for Medicare Hospital Insurance. If you are self-employed, you will pay the entire 2.9 percent by yourself.
Additional Medicare Tax
The additional medicare tax of 0.9 percent is withheld from the pay of employees who make more than $200,000 annually. Additional medicare tax is only charged during calendar years when an employee’s earnings exceed $200,000.
Additional medicare tax is not withheld from most teens because typically their income is much less than $200,000.
When Do Minors Have to Pay Federal Income Tax?
Each year, the IRS sets earnings limits for tax filers. If you earn more than the threshold for your specific income source, you will have to file a return regardless of your age.
Earned income is money you earn from working at a job. If you are a company employee, you earn income, and the earnings limit is $12,950. If you make more than $12,950, you will need to file a tax return no matter how old you are when you earn the money.
Income from investments or distributions that a teen earns but does not physically work for is known as unearned income. The limit for unearned income is $1,100. So, your child will have to file a tax return if they earn more than $1,100 from:
- Ordinary dividends
- Capital gains
- Pension and annuity income
- Taxable scholarships
The lowest earnings limit is for self-employed or contract employees. Employers do not withhold taxes from these employees and must file a return if they earn more than $400 in self-employment wages for the year.
Teen Tax Requirement FAQs
Tax return filing requirements change annually. When you are a teen these changing tax statutes are confusing. To ensure you understand these complicated tax laws, read the answers to the most frequently asked questions below.
Do I Have to File Taxes if my Parents Claim Me as a Dependent?
The fact that your parents claim you as a dependent does not affect your need to file a tax return. Each year, the IRS sets limits for income earners. Despite your age, if you make more than the yearly limit, you have to file a tax return.
You may also want to file a tax return if taxes were withheld from your check. The only way for you to receive tax credits or a refund of the taxes your employer withheld throughout the year. However, if your income is less than the threshold, it may be more financially beneficial for your parents to claim you.
So, it is a good idea to check with them to see if they plan to claim you before you file a tax return. If you file a return and your parents claim you, the IRS will flag one or both returns.
When Should You Stop Claiming Your Child as a Dependent?
You can claim a child as a dependent until the tax year that they turn 24 years old if they live with you and you support them. You can also continue claiming your child if they are in school and you support them.
There is an exception if your adult child is permanently disabled and you support them. If you care for a disabled dependent, it is a good idea to consult a tax accountant to verify what you can and cannot deduct.
If your child is working and makes over the threshold set by the IRS for the type of income your child earns, they will need to file a return. So, you will not be able to claim them as a dependent on your taxes.
Are Full-Time Students Exempt from Paying Federal Taxes?
School enrollment status does not affect a person’s requirement to file taxes. Income earners that make more than the limits set by the IRS must file a return. In most cases, a student minor who makes less than $12,550 does not have to file a tax return.
However, filing a return is the only way to receive a refund of the taxes an employer withheld from the employees’ paychecks. If a minor’s employer withholds taxes and the child does not file a return, they paid taxes.
How Much Tax Should I Withhold 0 or 1?
The more dependents you claim, the less money is taken out of your paycheck monthly. If your income does not require you to file a tax return, claiming a higher number of dependents will help you retain more of your monthly income. If you are going to file a tax return, claiming a lot of dependents may result in the IRS withholding too little money.
Do You Know How to Handle Taxes Taken Out of a Teen’s Paycheck?
Employers take taxes out of a teen’s paycheck to meet federal tax withholding requirements. Your minor does not have to file taxes unless their earnings exceed the federal tax reporting requirements. However, they are not entitled to a refund of the taxes they file a tax return.
The taxes taken out of a worker who makes less than $12,950 only pay a few hundred dollars in taxes, which is much less than the child tax credit and other deductions the IRS allows parents. So, financially it is typically better to have teens wait to file their first return until after their wages are more than $12,950 or they are older than twenty-four.
Until your teen is ready to file a separate return, you can prepare them to be financially responsible by teaching them how to save money and invest in a retirement account. That way they are a step ahead when they start filing tax returns.