Does Your Teen Need To File A Tax Return?

My sixteen-year-old daughter recently received her very first W-2 from her part-time job as a hostess at a local eatery. As her father, I couldn’t have been prouder; watching my youngest achieve another right of passage on the way to adulthood – the right to file her federal income tax return. As a taxpayer, I sighed inwardly – she has no clue what potential tax torment awaits her in the future.

While not every parent shares my duality of fatherly pride and tax avoidance-induced angst, parents do sometimes ask me if their working teens are required to file a tax return. Great question! Let’s explore it further. One caveat, though; I’m going to limit my discussion to the filing of federal income tax returns. Requirements may vary from state to state, so check with your individual state taxing authority for those rules.

Who must file?

Fortunately, the IRS has an Interactive Tax Assistant (ITA) that can help your teen determine if s/he needs to file a tax return. Your teen will need the W-2 sent by the employer, and after answering what seems like an endless stream of questions, the ITA will state whether your part-time worker needs to file a tax return. In many cases, the ITA may tell you that there is no need to file a federal tax return, because your teen did not earn enough income or had sufficient income tax withheld by the employer. Caution!  Don’t stop at this step…

Don’t give away more than you must

The rules for who must file a federal income tax return are found in IRS Publication 501. Generally, if your single (aka unmarried) teen made less than $12,000 in earned income in 2018, the IRS will tell you there is no need to file a federal income tax return. However, if the teen’s employer withheld income taxes from paychecks, your teen likely qualifies for a tax refund and should file a tax return in order to receive the refund. Just because you aren’t required to file a return doesn’t mean you shouldn’t file one. In short, don’t lose your refund by not filing.

Take home more money now

According to the IRS, “…status as a full-time student doesn’t exempt you from federal income taxes.” However, your part-time working teen might qualify for an exemption from having income tax withheld from each paycheck. If your teen owed no taxes for the previous year (e.g., qualifies for a full refund) and your teen does not expect to owe taxes this year (e.g., same job, same pay, same hours), then s/he may be eligible to file a form W-4 with the employer and enter “Exempt” on line 7. This means no income taxes will be withheld from each paycheck. It also means no refund (or a smaller one) when filing income taxes next time, but isn’t it better to have that money now?

It’s never too early