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While many parents (or parents-to-be) have probably gotten used to filing their taxes with their kids listed as a dependent, things can quickly change during the teenage years. If your teen gets a job, they will likely be responsible for filing their own tax return too.
So … what the heck does that look like? It can seem like overwhelming, uncharted waters, so we weren’t surprised to see reports of spikes in views of TikTok videos that combine “taxes and #parenting” and people sharing hilarious tax-related texts they got from their teens (“Am I a member of the clergy?”). And so SheKnows spoke with Lisa Greene-Lewis, a CPA and tax expert at TurboTax, to get a breakdown of how you and your teen should be handling tax season.
Q: What income thresholds determine when a teen must file their own tax return, and how do these thresholds differ for earned versus unearned income?
A: A teen with an earned income of more than $14,600 is required to file a return. Earned income is income from working, like wages, tips, and salaries — whereas unearned income is income earned from investing. Dependent teens earning unearned income of more than $1,300 are required to file a tax return. Even if your child earns less than the threshold for earned income, they should still file if they had federal taxes withheld from their paycheck, or they are eligible for an education credit like the American Opportunity Tax Credit, since they may get their withholding back and the refundable portion of the credit.
Q: Under what circumstances should a teen file independently rather than being claimed as a dependent on a parent’s return?
A: If your teen no longer meets the age requirements (under 19, and under 24 if a full-time college student) or makes more than the income requirement which is under $5,050 in taxable income, the teen can file independently, and the parent cannot claim them as a dependent. The teen may also be eligible for other tax benefits like the American Opportunity Tax Credit, up to $2,500 and the Student Loan Interest Deduction, up to $2,500.
Q: What are the key considerations and potential pitfalls for a teen transitioning from being a dependent to filing their own tax return?
A: Teens planning to transition should discuss the transition with their parents and make sure their parents don’t claim them as dependents, so that they can get the tax benefits, and also so there are no issues when they file — since only one person can claim someone as a dependent.
Q: How do tax obligations change when a teen earns income from gig work or a side business, and what specific self-employment taxes should they be aware of?
A: So many teens are picking up side gigs or diving into influencer work. According to our recent survey, 19% of Gen Z respondents were more likely than other generations to be dog walkers and 22% of Gen Z respondents were more likely than other generations to be content creators/influencers. If you make $400 or more net income from your side gig or influencer work, you are considered self-employed and you have to file a tax return.
You will also be subject to self-employment taxes, which are 15.3% of your net income. Your income will be reported on Form 1099-NEC if you make $600 or more. If you had payments processed by a third-party provider, like Venmo or PayPal, then you will receive a Form 1099-K when payments processed are over $5,000. Even if you didn’t receive the forms reporting your income, you are still required to claim that income. Don’t worry, though, you can claim deductions directly related to your business.
Q: What expenses can teens with side businesses or gig work deduct, and are there credits available that can offset their tax liability?
A: While there are so many expenses that qualify as business expenses, they have to be directly related to your business. You can deduct expenses for equipment used in your business like computers, video equipment, lighting, supplies, website development, support, travel, car expenses, marketing, and advertising.
Q: What types of documentation and record-keeping should teens maintain to ensure accurate and compliant tax filings, especially when they have multiple streams of income?
A: Keep track of your receipts for any expense directly related to your business. If you use QuickBooks Self-Employed, your expenses and mileage can easily transfer directly to your tax return, but even if you haven’t been tracking your expenses, TurboTax can securely link to your bank accounts and search for your deductions related to your business. (You can also have an experienced TurboTax Live tax expert do your taxes for you.) At tax time, you can also snap a photo of your W-2s, 1099-NEC, and 1099-K and the information will transfer to the correct tax form.
Q: What are the most common mistakes teens (or their parents) make when filing taxes, and how can these be avoided?
A: A common pitfall for parents and teens is not discussing who is claiming the teen as a dependent. Another common pitfall for the teen is not filing at all when they make under the IRS income requirement to file.
Even if teens make under the IRS income threshold, they should file if they had taxes withheld from their paychecks or they are eligible for a credit like the American Opportunity Tax Credit since they could get a refund. By not filing, they can be leaving money on the table. The IRS reports every year that they have over $1 billion in unclaimed refunds, but you have to file your taxes in order to claim your
refund.
Q: Are there any state-specific tax rules or obligations that parents and teens should be aware of?
A: Like federal taxes, most states do have state tax benefits for kids and families like the state Child Tax Credit, Child and Dependent Care Credit, and the Earned Income Tax Credit which could boost your refund and help your finances. Unless you live in a state with no state taxes, you are required to also file a state tax return.
We know: That was a lot to take in. One tax return is hard enough on its own, never mind wrangling a teen with two side gigs and not enough receipts. But with a little patience and a lot of communication, we’re sure you can make it through April 15.