Do They Take Taxes Out of Minors’ Paychecks?

Minors earning income often wonder if their paychecks are subject to the same tax deductions as adult workers. Regardless of age, income may be subject to various taxes. Understanding these obligations and how they apply to a minor’s earnings is important for both the minor and their parents or guardians. Specific tax rules and thresholds apply, influencing how much tax is withheld and whether a tax return needs to be filed.

Understanding Tax Obligations for Minors

When a minor receives a paycheck, several types of taxes can apply to their earned income. Federal income tax is levied on wages above a certain threshold. This tax is a percentage of gross income, with the specific amount depending on the total income earned and filing status. Employers are generally responsible for withholding this tax from each paycheck based on information provided by the employee.

State and local income taxes may also apply to a minor’s earnings, depending on the specific state and locality where the minor lives and works. The rules for these taxes vary significantly by jurisdiction, with some states having no income tax, while others impose a progressive or flat tax rate. These taxes are typically withheld from paychecks like federal income tax.

Beyond income taxes, minors are also subject to Federal Insurance Contributions Act (FICA) taxes, which include Social Security and Medicare taxes. Social Security taxes fund retirement, disability, and survivor benefits, while Medicare taxes fund hospital insurance. These taxes are generally mandatory for most employees, including minors, and are withheld directly from wages.

Determining a Minor’s Taxable Income

A minor’s taxable income is determined by specific rules, particularly concerning the standard deduction for dependents. Most minors are claimed as dependents on their parents’ tax returns, which affects how their standard deduction is calculated. The standard deduction for a dependent cannot exceed the greater of a base amount (e.g., $1,250 for 2023) or their earned income plus an additional amount (e.g., $400 for 2023). These amounts are indexed for inflation and can change annually. This standard deduction reduces the amount of income subject to federal income tax.

It is important to distinguish between earned income and unearned income when considering a minor’s tax situation. Earned income comes from wages, salaries, or tips. Unearned income includes sources like interest and dividends.

A minor is generally required to file a federal income tax return if their earned income exceeds their standard deduction amount. For example, if a minor earns more than $1,250 in wages in 2023, they would need to file a tax return. Other conditions, such as specific gross income thresholds or self-employment, can also trigger a filing requirement. Even if not required to file, a minor might choose to do so to claim a refund of any federal income taxes withheld from their paychecks.

How Withholding Works for Minors

Taxes are withheld from a minor’s paycheck using IRS Form W-4, Employee’s Withholding Certificate. This form is completed by the employee and provides the employer with information to determine the correct amount of federal income tax to withhold. Accurately completing the W-4 helps avoid over-withholding or under-withholding.

A minor expecting no federal income tax liability (e.g., income below the standard deduction) can claim “exempt” status on Form W-4. This means no federal income tax will be withheld from their paychecks. If a minor does not claim exempt status, the employer will withhold federal income tax based on the information provided, such as filing status and any other adjustments indicated on the form.

At the end of the tax year, employers issue Form W-2, Wage and Tax Statement, to each employee, including minors. This form summarizes the total wages earned and the amounts of federal income tax, state income tax, Social Security tax, and Medicare tax withheld during the year. The W-2 form is sent to employees by January 31st of the year following the tax year.

Filing a Minor’s Tax Return

Filing a minor’s tax return involves gathering the necessary documentation and submitting it to the appropriate tax authorities. The annual deadline for filing federal income tax returns is April 15th of the year following the tax year. The most important document needed for filing is the Form W-2, which details the minor’s wages and the taxes already withheld by their employer. Other documents, such as interest statements or records of other income, might also be needed if applicable.

There are several options available for filing a tax return. Many individuals use tax preparation software, which guides them through the process and performs calculations automatically. Some may prefer to engage a tax professional to prepare and submit the return on their behalf. Alternatively, paper forms can be downloaded from the IRS website and completed manually.

Parents or guardians often play a significant role in assisting their minor children with tax preparation and filing, especially if the minor is claimed as a dependent. This assistance ensures accuracy and compliance with tax laws. Filing a tax return allows the minor to reconcile the total taxes withheld from their paychecks throughout the year with the actual amount of tax they owe based on their income and deductions. This reconciliation can result in a tax refund if more tax was withheld than owed, or in some cases, a small balance due if not enough was withheld.