Do Minors Have to Pay Taxes - Guide 2024 | US Expat Tax Service (2024)

Whether you're a teen earning your first paycheck or a parent trying to make sense of your child's W-2, this article is your roadmap to understanding taxes for minors.

We’ll get to the bottom of minor taxation, from lawn mowing profits to the first official job, and the essentials of youthful finance where every dollar counts.

Understanding the basics: do minors have to pay taxes?

"Age is just a number, especially to the IRS." - pro CPA

This adage holds true when it comes to minors and taxes. The tax law does not discriminate by age; it's all about the income. If a minor earns income, Uncle Sam is interested.

NOTE! The same income tax rules that apply to adults also apply to minors. This means that if a minor's income from a job or other sources exceeds certain thresholds, they are required to file a tax return.

For instance, in 2024, a dependent minor must file a tax return if their earned income exceeds $13,850. However, for unearned income, such as interest and dividends, the threshold is much lower, at $1,250.

In essence, when a minor starts earning money, whether through a part-time job, a summer gig, or even babysitting, it's time to start thinking about taxes.

It's an early introduction to financial responsibility and the workings of the tax system.

The workings of withholding: what happens to a minor's paycheck?

The federal and state “tango”

When a minor starts earning, their paycheck will often have federal and state taxes withheld, just like any adult's paycheck.

The amount withheld depends on the income level and the information provided on Form W-4.

It's important for minors (or their parents) to accurately complete Form W-4 to ensure the correct amount of tax is withheld.

NB! Overestimating income can lead to excessive withholding, while underestimating can result in a tax bill at year-end.

The kiddie tax conundrum

Investment income for minors can trigger the "kiddie tax," where investment income over a certain threshold is taxed at the parent's rate. It's like sharing your toys, but with taxes.

For 2024, this threshold is $2,300. Income above this limit may be taxed at the parents' higher tax rate, rather than the child's typically lower rate.

This rule is designed to prevent parents from shifting large amounts of investment income to their children to take advantage of lower tax rates.

Income thresholds: when does a minor need to file a tax return?

Earned income - the part-time job question

For 2024, if a minor's earned income (like wages from that summer job at the ice cream shop) is less than $13,850, they typically won't owe taxes.

However, if taxes were withheld, they might file a return to get a refund. It's like finding forgotten money in your jeans pocket.

Unearned income - the investment income issue

Minors with more than $1,250 in unearned income, such as dividends or interest, need to file a tax return.

This requirement reflects the IRS's approach to ensuring that income from investments is taxed appropriately, regardless of the earner's age.

It's a crucial aspect of financial responsibility for young individuals, marking their first steps into the world of adult financial obligations.

Special cases: self-employment and odd jobs

Mowing lawns and babysitting - not just pocket money

Even income from mowing lawns or babysitting is subject to tax. If a minor earns more than $400 in self-employment income, they're on the hook for Social Security and Medicare taxes. Yes, even young entrepreneurs have to pay their dues.

This rule underscores the importance of understanding that self-employment and odd jobs are not exempt from tax obligations.

Pro tip. It's crucial for minors to maintain records of their earnings, as this income will need to be reported when filing taxes.

This early exposure to the responsibilities of self-employment can be an invaluable lesson in financial literacy and tax compliance.

Filing a tax return: a minor's rite of passage

The decision to file - to refund or not to refund

Filing a tax return might seem like a chore, but it can be worthwhile. If a minor had income tax withheld from their paycheck, filing a return could lead to a refund.

This process not only potentially recovers overpaid taxes but also serves as an educational experience in financial responsibility and understanding the tax system.

Parents' role - claiming income on your return

In some cases, parents can report a child's unearned income on their own return using Form 8814. It's a bit like doing your child's laundry – easier to handle it all at once.

However, it's important to weigh this option carefully, as it might lead to higher tax rates on the child's income.

Parents should consider their tax situation and consult a tax professional if necessary to determine the best approach.

A working teen's tax withholding: a parent's guide

Helping your teen with Form W-4

Assisting your teen with filling out Form W-4 can be a bonding experience. It's like teaching them to ride a bike, but with more numbers and less risk of scraped knees.

The paycheck breakdown - a learning opportunity

Reviewing a paycheck with your teen can be educational. It's a chance to teach them about gross income, net income, and why we can't always keep all the money we earn.

Bottom line

Understanding taxes is a crucial life skill, and for minors earning income, it's an early lesson in financial responsibility.

As they navigate their first forays into the working world, a solid grasp of tax basics will serve them well.

And remember, at Taxes for Expats, we're here to help you and your teen make sense of it all – because taxes don't have to be taxing.