Do Teens Have to File Taxes? What You Need to Know
Understand when teens need to file taxes, considering income types, thresholds, and dependency status, to ensure compliance and avoid penalties.
Tax season can be a confusing time, especially for teenagers earning income for the first time. With various rules and thresholds in place, determining whether teens need to file taxes is crucial for compliance and financial literacy. Understanding these requirements helps avoid penalties and empowers young earners with essential knowledge about their financial responsibilities.
Income Thresholds
Whether a teenager needs to file a tax return depends on income thresholds set by the IRS. For 2024, a single dependent under 65 must file if their earned income exceeds $13,850. This applies to teens with part-time jobs or summer employment. Unearned income, such as interest or dividends, also matters. If unearned income exceeds $1,250, a return is required. Filing is also necessary if combined earned and unearned income surpasses the larger of $1,250 or earned income plus $400.
Earned and Unearned Income
Understanding the difference between earned and unearned income is key. Earned income includes wages, salaries, and tips from jobs, typically documented on a W-2 form. Even if income doesn’t meet the filing threshold, filing may result in a refund if taxes were withheld. Unearned income, such as interest, dividends, or capital gains, is often reported on forms like 1099-INT. Teens with custodial accounts or savings bonds need to report this income.
Self-Employment Considerations
Teen entrepreneurs should understand self-employment tax rules. The IRS requires filing if net earnings from self-employment reach $400 or more. This includes freelance work, lawn care services, or online businesses. Self-employed teens must pay both income tax and self-employment tax, which covers Social Security and Medicare. The self-employment tax rate for 2024 is 15.3%. Keeping accurate records of income and expenses is essential, as deductions like home office expenses and supplies can reduce taxable income.
Dependency Status on Parents’ Returns
A teenager’s dependency status affects their tax obligations and their parents’ tax situation. Teens can be claimed as dependents if they meet IRS criteria, including age, residency, and financial support. Generally, a dependent must be under 19, or under 24 if a full-time student, and live with parents for more than half the year. Parents may qualify for tax credits like the Child Tax Credit, but teens may lose access to certain tax benefits if claimed as dependents.
Relevant Tax Forms
Teens need to be familiar with the right tax forms. For wages from part-time jobs, the W-2 form details total earnings and taxes withheld and is used to complete Form 1040. Unearned income, like interest or dividends, is reported on forms such as 1099-INT or 1099-DIV. Self-employed teens must complete Schedule C to report business income and expenses and Schedule SE to calculate self-employment tax. Parents can use Form 8814 to report a child’s unearned income under $12,500 on their own return.
Penalties for Non-Filing
Failing to file taxes when required can lead to financial and legal consequences. The IRS imposes a penalty of 5% of unpaid taxes for each month a return is late, up to 25%. Teens who owe no taxes but are required to file due to income thresholds can still face penalties. Non-filing may also result in losing refunds after three years and complicate future financial activities, like applying for student loans. Filing on time helps avoid penalties and promotes good financial habits.