Between the months of February and April of every year, as parents prepare to do their taxes, teens routinely ask if they too must complete a tax form. You may have asked this very question and the answer is routinely “yes”. The IRS considers a teen “self-employed” and subject to a self-employment tax if he or she has net earnings of $400 or more. If you are a part-time worker in a restaurant, for example, your earnings are considered taxable income. The IRS suggests you keep a log of all your tips since your salary plus your tips equals your full income in this case. If you baby-sit, mow lawns, and/or shovel snow and you earn more than $400, you need to file taxes. Paper carriers fall into a special category and you can learn about those tax requirements by clicking on the IRS link below.
In looking ahead to 2011, there is some good news coming in the form of the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act that reduces the Social Security tax from 6.2% to 4.2%. Instead of sending out stimulus checks, as was done in years past, the government has decreased the tax responsibility upfront. Something that is exciting to all tax payers….even teens.
To learn more about teen tax responsibilities, go to the student section of the IRS Web site.