Teens and Taxes: Do I Need to File Taxes?
Sign up for our FREE Monthly Email Newsletter
In addition to keeping in the financial know, you may be interested in checking your credit score and report.
¹The credit scores provided under the offers described here use the Equifax Credit Score, which is a proprietary credit model developed by Equifax. The Equifax Credit Score and 3-Bureau scores are each based on the Equifax Credit Score model, but calculated using the information in your Equifax, Experian and TransUnion credit files. The Equifax Credit Score is intended for your own educational use. It is also commercially available to third parties along with numerous other credit scores and models in the marketplace. Please keep in mind third parties are likely to use a different score when evaluating your creditworthiness. Also, third parties will take into consideration items other than your credit score or information found in your credit file, such as your income.
²The Automatic Fraud Alert feature is made available to consumers by Equifax Information Services LLC and fulfilled on its behalf by Equifax Consumer Services LLC.
³Equifax Credit Report Control™ is only available while you have a current subscription to Equifax Complete Premier. Locking your credit file with Equifax Credit Report Control will prevent access to your Equifax credit file by certain third parties, such as credit grantors or other companies and agencies. Credit Report Control will not prevent access to your credit file at any other credit reporting agency, and will not prevent access to your Equifax credit file by companies like Equifax Personal Solutions which provide you with access to your credit report or credit score or monitor your credit file; Federal, state and local government agencies; companies reviewing your application for employment; companies that have a current account or relationship with you, and collection agencies acting on behalf of those whom you owe; for fraud detection and prevention purposes; and companies that wish to make pre-approved offers of credit or insurance to you. To opt out of such pre-approved offers, visit www.optoutprescreen.com/.
4We will require you to provide your payment information when you sign up and we will immediately charge your card $4.95. After that, we will charge the card $19.95 for each month you continue your subscription. You may cancel at any time; however, we do not provide partial month refunds.
Equifax® is a registered trademark and Equifax Complete™ Premier is a trademark of Equifax, Inc. © 2014, Equifax Inc., Atlanta, Georgia. All rights reserved.
My brother and I have been working since we were in our early teens. Like many teens, not knowing anything about taxes, I just let my dad take care of any necessary filings until I moved out at age 18.
When Should You Start Filing Tax Returns?
Taxes are intensely more complicated today than they were when I started college and began filing my own tax returns. You can’t just jump into your own filings anymore without affecting your parents’ tax returns. There are kiddie tax rules and rules for students who may be dependents on their parents’ tax returns until they are 23 years old. It’s enough to make you scream!
There are two distinct situations to consider: teens with jobs and teens with investment income.
Teen with Jobs
As a teen or student, you may feel as if you are a protected class. We get discounts. Adult rules don’t apply to us. We don’t have to pay taxes. I know that’s how I felt.
Well…it doesn’t quite work that way.
“Exempt” is not the right choice to put on your employer’s W-4 form. Even if you earn as little as $3,650 in a year (from all sources), you are likely to face income taxes.
Freelance income is taxable even sooner. Once you have $400 in profit, you must pay self-employment (SE) taxes. That’s normally 15.3 percent of your profits. For only 2011, SE tax has dropped to 13.3 percent.
When reporting income on Schedule C, you can deduct your business-related expenses. If you are paying for your own Internet service, hosting, software, texting, supplies, etc., your freelance earnings of $1,200 might be reduced to less than $400.
When you file your own tax return, be sure NOT to claim yourself as a dependent. Kids under age 18 are always dependents on their parents’ tax returns. Students under age 24 suffer the same fate.
Teens with Investment Income
Parents and grandparents can be very generous, giving you gifts of money or stocks. Since that was a clever way for parents to move profits to a lower tax bracket, Congress closed that loophole, taxing the investment income of children under 18 at their parents’ highest tax rates. Recently, Congress raised the age limit to 24 for students who are still dependents of their parents.
The Tax Code has a unique definition of investment income for children. It doesn’t mean just dividends, interest, and capital gains. It turns out that for children, “investment income” is any income that isn’t wages or self-employment income.
If you have investment income of $1,900 or more, you need to either file your own tax return using Form 8615 or have your parents report your income on their tax return using Form 8814.
The Bottom Line
It’s good to get the experience of preparing your own tax returns, and it’s important to know when you have an obligation to file a tax return. However, it’s wise to coordinate your filings with your parents—and to have your parents review your tax returns before you file.
Equifax maintains this interactive forum for education and information purposes in order to allow individuals to share their relevant knowledge and opinions with other members and visitors. We encourage you to participate in discussions about personal finance issues and other topics of interest to this community, but please read our commenting guidelines first. Equifax reserves the right to monitor postings to the forum and comments will be published at our discretion. Do you have questions or comments about your Equifax credit report or customer-service issues regarding an Equifax product? If so, please contact Equifax directly. All opinions and information expressed or shared in blog comments are solely those of the person submitting the comments, and don't necessarily represent the views of Equifax or its management.