How Much Does a Minor Have to Make to File Taxes?

Understanding the tax obligations of minors is important for both young earners and their parents. As teenagers take on part-time jobs or entrepreneurial ventures, knowing when they are required to file taxes is crucial. The IRS provides specific guidelines to determine if a minor’s income necessitates filing a return.

This article explores the types of income that may require a minor to file taxes, focusing on earned and unearned income thresholds and other influencing factors to clarify this often-confusing topic.

Earned Income Filing Threshold

Understanding earned income thresholds is essential for minors entering the workforce. The IRS sets clear parameters for when a minor must file a tax return based on their earned income.

Wages

Wages are the most common form of earned income for minors, typically from part-time jobs or summer work. In 2023, the IRS requires a minor to file a tax return if their earned income exceeds the standard deduction for single filers, currently $13,850. Employers provide Form W-2, which details earnings and federal tax withheld. Minors earning below this threshold are not required to file but may choose to do so to claim a refund on withheld taxes. Accurate record-keeping of earnings and deductions is important for compliance and maximizing refunds.

Tips

For service jobs like waiting tables or delivering food, tips can form a significant portion of income. Cash tips of $20 or more in a month must be reported to the employer and are subject to income, Social Security, and Medicare taxes. If total wages and tips exceed the standard deduction, a tax return is required. Even if below the threshold, tracking tips is essential for financial management and future tax planning.

Self-Employment

Self-employment income triggers separate obligations. Minors earning $400 or more from activities like freelancing, babysitting, or lawn care must file a tax return, as this income is subject to income tax and self-employment tax. The self-employment tax rate is 15.3%, covering Social Security and Medicare contributions. Keeping detailed records of income and business expenses is vital for completing Schedule C (Profit or Loss from Business) and Schedule SE (Self-Employment Tax). Proper documentation helps ensure accurate reporting and allows minors to claim deductible expenses, reducing taxable income.

Unearned Income Filing Threshold

Unearned income, such as interest, dividends, and capital gains, also affects a minor’s tax filing requirements. If unearned income exceeds $1,250 in 2023, a tax return is required. This lower threshold reflects the nature of these income sources and underscores the need for careful tracking.

Interest

Interest income, from sources like savings accounts or bonds, is a common form of unearned income for minors. If interest income exceeds $1,250, a tax return is required. Form 1099-INT from financial institutions provides details of interest earned. Tracking income and understanding tax implications can help minors make informed savings and investment decisions. For instance, tax-advantaged accounts like Roth IRAs allow for tax-free growth under certain conditions, offering long-term benefits.

Dividends

Dividends, typically from stock or mutual fund investments, are taxable income. If combined unearned income, including dividends, surpasses $1,250, a tax return is required. Form 1099-DIV reports ordinary and qualified dividends, with the latter taxed at lower capital gains rates. Understanding this distinction can inform investment strategies, as qualified dividends may be more tax-efficient for minors in lower tax brackets.

Capital Gains

Capital gains, from selling assets like stocks or bonds, also impact tax filing requirements. If combined unearned income exceeds $1,250, a tax return is required. The IRS distinguishes between short-term gains (assets held for one year or less) taxed at ordinary income rates and long-term gains (assets held for over a year) taxed at lower rates. Form 1099-B provides details on proceeds from asset sales. Timing asset sales to qualify for long-term capital gains rates can reduce tax liability, an important consideration for minors and their families.

Combined Income Threshold for Minors

Tax obligations become more complex when considering combined income. In 2024, minors must file a tax return if total income—earned and unearned—exceeds the standard deduction for single filers, set at $14,000. This threshold accounts for all income sources, creating a complete financial picture for tax purposes.

For example, a minor earning $8,000 in wages and $6,500 in unearned income would exceed the $14,000 threshold, requiring a tax return. This holistic approach ensures all income is taxed appropriately. Parents and guardians should keep this threshold in mind when guiding minors in employment and investment decisions.

Understanding the combined income threshold is not just about compliance; it’s also an opportunity for financial education. By grasping how their income interacts, minors can make informed decisions that optimize their tax situation and support long-term financial well-being.

Dependent Status Factors

A minor’s dependent status determines how their income is taxed and whether they need to file a tax return. The IRS uses criteria like the relationship, age, residency, and support tests to establish dependency.

The support test, which evaluates if the minor provides more than half of their own financial support during the tax year, is particularly significant. Failing this test may mean the minor is not a dependent, changing their tax obligations. This can also affect eligibility for credits like the Child Tax Credit or Earned Income Tax Credit, which impact a family’s tax liability. Parents should assess their child’s dependent status carefully to maximize tax benefits.

Special Elections by Parents

Parents of minors with unearned income can simplify tax filing by making a special election under IRS rules. Using Form 8814, parents can report a child’s unearned income on their tax return instead of filing a separate return for the child. This option is available if the minor’s unearned income is under $12,500 in 2023 and consists solely of interest, dividends, and certain capital gain distributions.

Although convenient, this election may increase the parent’s tax liability, as the child’s unearned income is taxed at the parent’s marginal tax rate. For example, a parent in the 24% tax bracket would pay that rate on the child’s income, potentially outweighing the administrative benefits. Families should weigh this option against filing separately at the child’s lower tax rate. Consulting a tax professional can help determine the best approach.

Filing Steps for a Minor’s Return

When a minor needs to file a tax return, understanding the steps can simplify the process. Filing follows the same basic framework as for any taxpayer but requires attention to unique income sources like unearned income or self-employment earnings.

Start by gathering all necessary documentation, including Forms W-2, 1099-INT, 1099-DIV, or 1099-B. For self-employment income, detailed records of expenses and income are needed to complete Schedule C and Schedule SE. Ensure Social Security numbers and other identifying details are accurate to avoid processing delays. Minors eligible for deductions or credits, like the standard deduction or education-related credits, should claim them to reduce tax liability.

Next, complete the appropriate tax forms, typically Form 1040, along with any required schedules. Filing electronically expedites refunds, usually issued within 21 days. For those owing taxes, payments can be made electronically or by mail, but meeting the filing deadline is essential to avoid penalties. The IRS offers free filing options for taxpayers below certain income thresholds, providing a cost-effective solution for families managing a minor’s tax obligations.