Teens and Taxes: Are Summer Earnings Taxable?

Is your teen on the hunt for a summer job this year? Whether he or she is required to file a federal tax return and/or pay federal taxes depends on the type of job and how much they earn.*

If they’re hired as a regular employee in 2020 …

… and their net earnings are:

Filing a tax return is:

And their tax liability is:

$12,400 or less (the standard deduction in 2020)

Not required

Zero federal income tax; however, Social Security (6.2%) and Medicare (1.45%) withholding may apply

More than $12,400

Required

Their earned income that exceeds the standard deduction, multiplied by the applicable federal tax rates, plus any Social Security and Medicare withholding

 

If they’re hired as an independent contractor in 2020 …

… and their net earnings are:

Filing a tax return is:

And their tax liability is:

Less than $400

Not required

Zero in federal income tax

$400 to $12,400

Required

Zero in federal income tax; however, they may owe a self-employment tax of 15.3% (12.4% for Social Security and 2.9% for Medicare)

More than $12,400

Required

Their net earned income that exceeds the standard deduction, multiplied by the applicable federal tax rates, plus the self-employment tax

*These tables are for general informational purposes only. They address only federal filing requirements for earned income. Other federal filing requirements may apply; see IRS Publication 929 for more details.
 

Even if your child is not required to file a federal tax return, it may be wise to submit one anyway, ideally after a consultation with a tax advisor. “If your teen worked as a regular employee and had taxes withheld, he or she may be due a tax refund, so it could be worth the effort to file a return,” says Hayden Adams, CPA, CFP®, and director of tax and financial planning at the Schwab Center for Financial Research.

Finally, Hayden says it’s a good practice to include your children in the tax-preparation process as soon as they start earning income. “Teaching our kids the significance of taxes—and the ramifications of not managing them correctly—is an important lesson on the road to financial literacy,” he says.

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Important Disclosures

The information provided here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.

All expressions of opinion are subject to change without notice in reaction to shifting market conditions. Data contained herein from third-party providers is obtained from what are considered reliable sources. However, its accuracy, completeness or reliability cannot be guaranteed.

Examples provided are for illustrative purposes only and not intended to be reflective of results you can expect to achieve.

Investing involves risk, including loss of principal.

This information does not constitute and is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.

The Schwab Center for Financial Research is a division of Charles Schwab & Co., Inc.