Are Teen Subject to Income Taxes?

Are teens subject to income taxes? It will depend on their income level and dependency status. It is important to know when they are expected to pay income taxes and how to do so. In this article, we will cover the basics of whether or not teens are subject to income taxes.

Dependency Status

There are a few qualifications a minor must meet to consider to be a dependent.

These include:

• Must be under 19 (or under 24 if a full time student)
• Living with parents for more than 50% of the year
• They do not provide for more than half of their financial support
• Unmarried
• A US citizen, US resident, US national, or resident of Canada or Mexico

If a teen qualifies as a dependent they may not be subject to filing an income tax return. If a teen isn’t a dependent, they will need to file their own tax return.

Income Thresholds

The IRS uses two types of income to determine if a tax return is required. First is earned income. This includes income from salary, wages, tips, professional fees, and any other amounts received for any work performed. Second is unearned income. This is income from a passive source like interest, dividends, capital gains, rents, royalties, or distributions from a trust. If a dependent has $13,850 or more in earned income they will need to file a tax return. If a dependent has $1,250 or more in unearned income they will need to file a tax return.

Some income is not included in these calculations. Excluded income can refer to gifts, cash rebates, alimony, child support, reimbursements for qualifying adoptions, welfare payments, life insurance death benefits, and scholarships.

Capital Gains and Kiddie Tax

You generate capital gains when you buy an investment and sell it for a higher price. These funds may be subject to kiddie tax. You calculate and report this tax on Form 8615. You will need to meet the following qualifications to need this form:

1. The only income for the year is from interest and dividends and that income exceeds $2,500 for the year.
2. The dependent was under 18 at the end of the tax year. Or was 18 at the end of the tax year but did not provide for more than 50% of their income. This limit is 19-24 if the dependent is a fulltime student.
3. At least one parent was alive at the end of the tax year.
4. The dependent is required to file a tax return and is not filing a joint return.

When Teens are Subject to Income Taxes

If you earned more than $13,850 in earned income or $1,250 in unearned income you may be subject to income taxes. If you employer withheld taxes from your paycheck you may be able to receive some of them back by filing a tax return. Still unsure about what needs to be done? Contact your tax preparer for assistance.

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