Teens and Income Taxes

The Five Most Significant Things Your Teen Needs to Know About Income Taxes

When your teenager receives his first pay check, he will notice that he has had some money taken out for federal income taxes – quite possibly state and local taxes too. American companies are required by law to take this money out of all employees pay. This will seem strange to your teenager and he will have questions about it – especially since it has affected 'his' money. Here are the five most significant things you can explain to your teenager to help him understand income taxes:

1. Make your teen aware that if he works(earns income), he will have to pay taxes - minor or not. Age is not a factor when determining whether or not a person has to pay income tax. If your teenager receives a paycheck from a company, the company will take taxes from his pay. If he makes over a certain amount in a given year, he will have to file an income tax form and pay taxes on the appropriate amount. For 2008, the amount is $9,350. A teenager who worked for XYZ Company and made $9,350 in the year 2008 will have to file and pay taxes on that amount, but a teenager who worked for XYZ Company and made $9,349 does not have to file an income tax form.

   Your teenager should know that there may be times when he does not have to file an income tax form but, it may benefit him to do so anyway. For example, if he worked part time for a company and only earned a small amount, federal income taxes were taken out of that small amount. He would be due a refund and can only get his refund if he files an income tax form.

2. Your teen needs to understand certain paperwork and tax forms. He will face many tax forms that will seem foreign to him. Here are just a few:
   • When your teenager gets a job, he will be faced with filling out a W-4 form.
   • When he gets paid, there will be deductions taken off of his gross income. These are explained on his pay check stub.
   • At the beginning of the next year, he will receive a W-2 form.
   • If your teenager has been doing self-employment work, such as mowing lawns, he will need to fill out a Schedule C form.
   Help your teen get a better understanding of the tax forms and paperwork he will need to understand by reading the instructions here.

3. Your teen may need to file if he/she has unearned income.This is income from investments, interest, capital gains, etc.

4. Your teenager needs to know that the money she brings in babysitting and mowing lawns is considered earned income by the United States government. She will have to pay self-employment taxes on it if the amount is above what is set for that year. For instance, in the year 2008, if he/she brings in more than $400.00 of self-employment income.

5. Your teen needs to know how tax money is used by the government. While taxes can seem like a burden, they are a necessary part of living in our great country. Income tax money does not just fly into an abyss and fade away. It takes money to run a country and your teen will, as a citizen of the Untied States, need to do his part. Federal income taxes go toward services, including repair of national highways, military spending, space exploration, law enforcement and aid to foreign countries - just to name a few. Knowing this will help your teenager feel a part of something that is bigger than himself and help teach him about citizenship.

By sharing these five significant explanations about taxes with your teen, he will have a better understanding of what taxes are and how federal income taxes influence his world.

Parenting Poll: Who is preparing your teen's taxes?

• My teenager.
• Me (or my spouse).
• Both my teenager and myself.
• A professional tax consultant.

See the poll results.