Your teen has entered the workforce and is receiving a paycheck. Now is a great time to start talking about taxes. Teaching your kids about taxes helps take the fear and stress out of tax filing. By giving them the basic info they need, you are empowering them to be the master of their own money. Here is some simple but essential tax filing knowledge you can share with your teen.
Net income vs. gross income
Let’s say you started working at a clothing store for $9.00/hour. You worked 27 hours this pay period, so you might be expecting to get a paycheck for $243. Instead, your take-home pay is closer to $200. Why is that?
Every person who earns money working in the U.S. is supposed to pay federal income tax – and now that you’re employed, this includes you. You’re also required to contribute to Social Security and FICA. Most states governments charge a state income tax, too.
Since the government expects you to pay taxes, they make it easy for you – that is, they take it directly out of your wages. As a result, the amount of money you take home will not be equal to the amount you earned.
Your gross income is the amount of salary or wages your employer paid you before any tax was taken. So, the $243 you earned for 27 hours of work is your gross income. But your net income is what you take home after you have paid income tax, Social Security, and FICA.
Tax filing status
Unless you are married, the filing status on your first tax return should be single. The IRS cares about your filing status because it helps them understand which income tax bracket to put you in (we discuss tax brackets next). Single people, married couples, people with dependents, and widow(er)s are put in different tax brackets, based on their filing status.
Income tax brackets
How do you know how much you owe for taxes? There’s some math involved. The amount of tax you pay is a percent of your total taxable income for the year. This is called your tax rate.
The government decides how much tax you owe by dividing your taxable income into chunks — also known as tax brackets. Each chunk gets taxed at a different rate. For example, here is a look at the tax brackets for 2020:
Taxable income by filing status
|Rate||Single||Married (filing jointly)||Married (filing separately)|
|10%||$0 – $9,875||$0 – $19,750||$0 – $9,875|
|12%||$9,786 – $40,125||$19,751 – $80,250|
$9,876 – $40,125
|22%||$40,126 – $85,525||$80,251 – $171,050||$40,126 – $85,525|
|24%||$85,526 – $163,300||$171,051 – $326,600||$85,526 – $163,300|
|32%||$163,301 – $207,350||$326,601 – $414,700||$163,301 – $207,350|
|35%||$207,351 – $518,400||$414,701 – $622,050||$207,351 – $518,400|
|37%||$518,401 and up||$622,051 and up||$518,401 and up|
As you can see, the rate you pay on your chunks depends on what your filing status is.
Fun fact: The U.S. has a “progressive” tax system. What that means is, people with higher taxable incomes pay higher federal income tax rates, and people with lower taxable incomes pay lower federal income tax rates. If a person’s highest taxable rate is 35%, then we say they are in the 35% tax bracket. If the highest tax rate you will pay is 10%, you are in the 10% tax bracket.
Who is required to file a tax return?
Not everyone has to file taxes. For example, if your filing status is single and you earn less than $12,400 per year from your job, you don’t have to file a tax return.
Why should teens file their own taxes?
If your employer withheld money from your paycheck for taxes (and they probably did), you might be owed a refund. But, you can’t get your refund if you don’t file a tax return.
The info you enter on your tax return will be used to calculate whether your employer withheld too much, too little, or just enough from your paycheck to cover the taxes you owe. If too much was withheld, you will receive a refund.
“Do I have to pay taxes for a side job like babysitting, lawn mowing, etc.?”
Possibly. If you earn more than $400 by mowing lawns or babysitting (or something similar), the IRS considers you self-employed – no matter how old you are. So, you’ll need to file a tax return and report what you earned from these types of jobs if you earn more than $400 per year.
The good news is, you can also take tax deductions for certain expenses that are related to your job. For example, you could deduct mileage if you drive yourself to work. And if you use your own lawnmower to mow grass, you could write off the cost of your equipment.
What you need to file a simple tax return
- Your W-2. Your employer should send your IRS Form W-2 Wage and Tax Statement in the mail or by email in January. Learn more about your first W-2.
- Your legal name.
- Your tax ID number. This will most likely be your Social Security number (SSN). If you don’t know your number, you can find it on your Social Security card. If you don’t have a SSN you will need an ITIN. The IRS uses this to make sure you are who you say you are.
- A TaxSlayer account. You’ll need your own username and password, even if you are a minor. It’s free to create an account.
Free tax filing for teens
Let’s say you are single (not married), and the only tax form you have is a W-2. If this sounds like you, then you should qualify for Simply Free tax filing.
When you file with TaxSlayer, you’ll be asked easy questions about your income. You can find the answers on your W-2. The info you provide will be entered into your IRS Form 1040 (your federal tax return). If your state collects income tax, you will fill out a separate state return as well, still using the information found on your W-2.
The information in this article is up to date through tax year 2020 (taxes filed 2021).