If You’re Under 18, Do You Have to Pay Taxes?

Tax obligations can seem complex, especially for individuals under 18. While age itself does not determine whether someone must pay taxes, the type and amount of income earned are the primary factors. Knowing the requirements can prevent potential issues and ensure compliance with tax laws.

Income Subject to Taxation

Income a minor earns can generally be categorized as either earned income or unearned income. Earned income is generated through active participation, such as wages, salaries, professional fees, or payments received for services provided. Common examples for minors include earnings from a part-time job, babysitting, lawn mowing, or freelance work.

Unearned income, conversely, is typically derived from passive sources, meaning it is not generated from work or business activities. This category includes interest from savings accounts, dividends from investments, capital gains from selling assets, trust income, and rental income.

Determining Filing Obligation

A minor’s obligation to file a federal income tax return depends on their gross income, earned income, and unearned income. For the 2024 tax year, a dependent child generally must file a tax return if their unearned income was more than $1,300. If their earned income exceeded $14,600, they would also be required to file.

The filing requirement also applies if a dependent’s gross income was more than the larger of $1,300, or their earned income plus $450, up to the standard deduction limit. For minors with self-employment income, a much lower threshold applies; they must file if their net earnings from self-employment were $400 or more. Even if a minor’s income falls below these thresholds, filing a return might be beneficial, particularly if federal income tax was withheld from their paychecks, as they could be due a refund.

Navigating the Filing Process

Although the income belongs to the minor, parents or legal guardians usually assist with preparing the tax return. The minor is ultimately responsible for the information reported on their tax return.

The primary form used for filing federal income tax is Form 1040, which may require additional schedules depending on the types of income. For instance, if the minor has certain types of income beyond wages, Schedule 1 may be necessary. To prepare the return, various documents are needed, such as Form W-2 for wages, Form 1099-INT for interest income, and Form 1099-DIV for dividends. Tax returns can be filed using tax software, through a professional tax preparer, or by mailing a paper return directly to the IRS.

Key Tax Rules for Minors

Several specific tax rules apply to minors, impacting their filing requirements and tax liability. One notable rule is the “Kiddie Tax,” designed to prevent parents from shifting investment income to children to take advantage of lower tax brackets. For 2024, if a child’s unearned income exceeds $2,600, a portion of that income may be taxed at the parents’ marginal tax rate. The first $1,300 of a child’s unearned income is tax-free, and the next $1,300 is taxed at the child’s tax rate.

A minor’s dependency status also influences their tax situation. If a parent or another taxpayer can claim the minor as a dependent, the minor cannot claim themselves as a dependent on their own tax return. This affects the minor’s standard deduction, which for 2024 is limited to the greater of $1,300 or their earned income plus $450, up to the single filer standard deduction amount. Despite being a dependent, a minor with earned income can contribute to an Individual Retirement Account (IRA), such as a Traditional or Roth IRA, provided they have compensation from employment equal to or exceeding the contribution amount.