The Complete Guide to Filing Taxes for Your Teenager

It sounds like congratulations are in order! If you’re reading this, there’s a good chance your teenager is in a position where you’re wondering if they might need to file their first tax return. So you’ve decided to read up on filing taxes for your teenager.

There could be a ton of reasons for this—part-time work in the summer months or financial aid—but the point is fairly straightforward. You need to know what taxes you and your teenager might be on the hook for filing next year.

Filing Taxes for Your Teenager

Filing taxes is an important step on your financial journey, and whatever your age may be, it’s definitely a memorable one. You want to make sure you’re prepared at every step of the tax filing process, and things should be no different for your teenage child!

Even if they haven’t applied for financial aid, received scholarships, started investing, or taken on a summer job, you could benefit from reading up on what the IRS expects from you and your child before it’s time to file.

There are plenty of financial lessons to teach that come with the tax filing process, and as we all know—the sooner your child learns about how their finances work, the better off they’ll be in the future.

So, let’s dive right into our complete guide to filing taxes for your teenager. We’ll cover the major financial situations your son or daughter might find themselves in and the applicable tax rules!

Filing Taxes for Your Teenager: Summer and After School Jobs

Your teen’s first summer job is a big milestone. It offers a sense of independence, a newfound respect for a hard-earned dollar, and a whole lot more. Here’s what you should keep in mind regarding taxes.

1. Understand the type of work.

For the most part, the money your teen makes working any sort of job is taxable. But things are a little bit different based on what kind of work they’re performing. For example, filling out a W-4 for an hourly job at a restaurant will let them determine how much they want withheld in federal and state taxes.

On the other hand, self-employment income is taxed somewhat differently—so your teen’s babysitting or craft business will probably affect them differently.

2. Keep track of the earnings.

While your teen’s income is technically taxable, the IRS views anyone under 19 years of age as a dependent. As long as the money your teen earns doesn’t exceed the standard deduction, they won’t need to file come Tax Day.

However, the IRS treats self-employment and contract work a bit differently. If your self-employed teen earns more than $400, the IRS will typically require them to file a tax return. And the same goes if your teen earns more than $600 as an independent contractor.

Filing Taxes for Your Teenager: Scholarships

Hard work pays off, but does Uncle Sam take a cut? Here’s what you should keep in mind.

1. If it’s for school, it’s tax-free.

Scholarships break both ways, but for the most part, a scholarship will be tax-free if it’s being used to pay for tuition, supplies, books, and other registration fees. Some scholarships will spell this out, while others may be more ambiguous—but if your son or daughter is a degree candidate and using the scholarship for school, you’re probably safe.

2. If it’s for living, it probably isn’t tax-free.

What likely won’t count as tax-free is any scholarship that is used to pay for things like living expenses, food, travel, and other items not specifically required for a course. If it isn’t being used for course-related expenses, your scholarship is probably taxable.

Filing Taxes for Your Teenager: Savings and Investing

A first savings account or an investing account can do wonders for a young person just beginning to think about their financial future. There are a couple of considerations to keep in mind regarding taxes.

1. Savings accounts are taxable but rarely taxed.

If you open a savings account for your child to grow their money, your child will receive interest on the balance—and that interest is taxable. However, the amount of interest your child is actually going to receive is far below the limit the IRS will care about.

2. Invest smart and avoid taxes.

Investing can provide great lessons, but also costly ones at tax time—depending where you invest. For example, a Roth IRA can be a smart way of maximizing your teenager’s low tax rate (which means more after-tax income they can invest!) while giving them an early start on their future.

Filing Taxes for Your Teenager

For newcomers, taxes can be intimidating. The rules can be confusing and it’s hard not to worry. But with your guidance, your teen will be able to manage their new income, scholarships, or saving strategies with ease—while taking advantage of really favorable tax rates. Help them start off on the right foot and they’ll be off to the races before you know it.