Even if you don`t need to file a federal tax return, you should file whether you can get money back (for example, if you withheld federal income tax from your salary or if you qualify for a refundable tax credit). For more examples, see “Who should file” in Publication 501. When a person earns money, including a teenager, they usually have to pay taxes unless their income is below the threshold of their registration status or it is explicitly exempt from tax. It`s probably not for the most common types of income that teens generate. When an employed teenager – or a salaried taxpayer – files his or her tax return, he or she compares his or her actual tax for the year to the amount of tax he or she has already paid during the year, for example by withholding his or her paycheques. You will receive a refund if more taxes have been withheld than they actually owe for the year. They will have to pay the difference to the IRS if less tax has been withheld than they owe for the year. It may still be a good idea for a teen to file a tax return in certain situations, even if they are not required to do so. Your employer may have withheld amounts from their salary even though they don`t have federal income tax. Filing a tax return is the only way to recover these income tax deductions as a refund. Some specific aspects of tax legislation, such as the children`s tax, apply only to adolescents and other minors.
But young people are taxed for the most part like any other taxpayer. They will likely have to file a tax return and pay income tax to the extent that they earn income subject to tax that exceeds their standard deduction or the amount of their individual deduction, or to the extent that they earn self-employment income of $400 or more in the taxation year. Just because your son or daughter files their own tax return doesn`t mean you have to stop declaring them dependent on yours. You can still declare your child as a dependant if the IRS definition of “eligible child” is met. The child must be your son, daughter, son-in-law, foster child, brother, sister, half-brother, half-sister, half-sister, half-sister or descendant of one of these children. The child must also be under the age of 19 or under the age of 24 if they are a full-time student and must have lived with you for more than half of the year. A teen`s standard deduction would reduce their taxable income to zero and they would have no ordinary tax to pay if they were a single dependent and earned up to $12,950 in 2022. For example, a 15-year-old who works after school and earns less than $1,100 owes nothing in taxes.
If an employer withholds tax on their paycheque, they will still have to file a tax return to get a refund. To determine if your child owes self-employment taxes (essentially social security and health insurance taxes for the self-employed), use Appendix SE. Your child may have to pay a self-employment tax of 15.3%, even if no income tax is due. If you can afford it, you should adjust your child`s contributions to this IRA. The total contribution may not exceed the child`s total income for the year. This allows your child to start saving for retirement, but keep more of their own income. It also teaches them the idea of the matching fund, which they may encounter later when they have a 401(k) at work. It will likely make sense for the child to open a Roth IRA if they qualify and start enjoying decades of pre-retirement compound interest and tax-free withdrawals in retirement. Whether your daughter files a tax return or not, I would definitely talk to her about taxes and withholding taxes and let her work with you while you prepare her or your own tax return. An employer usually asks an employee to complete a W-4 form when starting a job. The form provides the employer with the information they need to determine the amount of withholding tax to be deducted from the employee`s paycheques. Completing Form W-4 is a relatively simple task for teens who have only one job and no other source of income.
Your personal data will be entered in step 1 and you will have to sign the form in step 5. A child must file a tax return if they have more than $1,100 of unearned income from investments such as capital gains tax and derivatives. If this value is less than $11,000, the unearned income can be reported on a parent`s form. However, this is part of a parent`s tax, so if that money gets a parent above the next tax threshold, more money needs to be paid into the IRS. Let`s say your daughter has only $400 in earned income, but $800 in investment income. In this case, she would also have to file a tax return, as her total income of $1,200 is more than $1,100. Some people mistakenly believe that their child`s dependent status means they don`t have to file taxes. However, dependent child status does not exempt your child from filing a tax return in certain situations.