Teens and Taxes: Tax Implications for a Summer Job

Taking on a summer job is a rite of passage for many teens. It’s also a great way for kids to learn some financial responsibility while earning their own money. It even provides an opportunity for young adults to get acquainted with what it means to have to pay taxes. In most cases, the IRS considers any money your teenager earns from working as taxable income. What they owe depends on how much money they make and what kind of work they do.

A financial advisor can help you or your teen build a budget for taxes, savings, and more.

Wage Reporting and Tax Withholding

When your teenager gets hired for a summer job they’ll most likely have to complete a Form W-4. Employees use the W-4 to let their employer know how much to withhold for federal and state income taxes. Your teen can also use this form to claim an exemption from federal withholding. But only if they don’t think they’ll earn more than the standard deduction limit.

Generally, your child won’t have to file a separate tax return if you claim them as a dependent. The IRS considers anyone who is under age 19 a dependent, unless they’re permanently disabled. For 2026 taxes (which you’ll pay in 2027), the standard deduction is $16,100. ¹ So as long as they don’t make over that amount they won’t have to worry about filing in April.

Taxes on Self-Employment Income

If your teen wants to branch out on their own, starting a summer business could help. However, whether it’s babysitting or mowing lawns, they may still be responsible for paying taxes on the money they make. Generally, the IRS requires teens who earn more than $400 from self-employment to file a tax return. ² If they have any expenses to deduct, such as mileage or equipment, they’ll also need to file a Schedule C. The self-employment tax rate is 15.3% of the net profits.

The self-employment tax rule also applies if your teen is working for an employer as an independent contractor, rather than an employee. In this situation, they would receive a Form 1099 at the end of the year if they earned more than $600. Depending on how much they earned, they may not have made enough to owe federal income tax but they’ll still be on the hook for self-employment tax.

Working in the Family Business

If you or your spouse owns a business, putting your teen to work can give them some valuable entrepreneurial experience and it may even help you to score a tax break. If the business is set up as a sole proprietorship or partnership, you’re not required to withhold FICA taxes if your child is under 18.

You also don’t have to pay federal unemployment tax if they’re under age 21. Just keep in mind, however, that if you pay them more than the standard deduction limit you’ll still have to withhold federal income tax.

Claiming Working Teens as Dependents

Claiming your son or daughter as a dependent on your income tax can add up to some serious tax savings but if they’re making their own money, it could throw a wrench in your plans.

Generally, the IRS allows you to claim eligible dependents who work as long as they don’t provide more than half of their own financial support during the year. Your teen also has to live with you for more than half the year. It’s important to note that if you do claim your teen as a dependent and they end up having to file a separate return for summer job income, they won’t be able to claim a personal exemption for themselves on their taxes.

Beware of the Kiddie Tax

The IRS defines income as earned or unearned for tax purposes. Generally, money from a summer job or self-employment would be considered earned income. Unearned income refers to money your child receives from investments, including interest, dividends and capital gains. If your teen has any unearned income on top of what they make at their summer job a different set of tax rules will apply.

Anything over $2,700 will be subject to the parents’ marginal rate, which could mean a larger tax bite when it’s time to file. ³ If you know your teen will be receiving taxable amounts of earned and unearned income, you may want to consult a tax professional about the best way to minimize the tax liability.

Managing Take-Home Pay and Setting Aside Taxes

Your teen’s first paycheck will likely surprise them. The amount deposited in their account is smaller than the hourly wage posted times hours worked. That gap is taxes. Understanding this difference prevents disappointment and teaches a critical lesson about how money actually works.

When your teen completes their W-4, they’re telling their employer how much tax to withhold from each paycheck. If they claim zero allowances, more money comes out each check. If they claim allowances, less comes out—but they may owe taxes when they file in April. Either way, taxes are coming due. The paycheck they receive is gross income minus withholdings. The money they have to spend is net income.

If your teen earns $3,000 over the summer, they should expect roughly 10% to 15% withheld for federal and state taxes, depending on where you live. That means setting aside $300 to $450 before budgeting the remaining $2,550 to $2,700. The easiest approach is opening a separate savings account and immediately transferring the expected tax amount there when each paycheck arrives. This prevents accidentally spending tax money and facing a bill in April.

For self-employed teens, the responsibility is greater. No employer withholds anything. Your teen receives the full amount but owes self-employment tax (15.3% of net profits) plus federal income tax when they file. They should set aside 25% to 30% of earnings in a dedicated account to cover these obligations. This habit teaches them that not all money earned is money available to spend.

Build Financial Discipline

Opening a checking or savings account marks financial adulthood. Many banks offer teen accounts with parental oversight. Your teen can deposit paychecks directly, transfer money to the tax savings account and track spending in real time. This creates accountability and builds good banking habits before they move into their own place.

File taxes on time, even if your teen doesn’t owe. Many teens with summer jobs qualify for refunds because employers over-withheld. Filing the return gets that money back into their account. Mark April 15 on the calendar and gather documents early: W-2s from employers arrive by January 31, or 1099s if they were self-employed. Missing the deadline can trigger penalties.

Budget the net income intentionally. If your teen earns $3,000 and sets aside $450 for taxes, they have $2,550 remaining. Suggest allocating it as follows: $750 to savings (demonstrating discipline), $1,200 to a specific goal like a laptop or fall semester spending, and $600 for discretionary purchases. This breakdown teaches the difference between wants and needs while ensuring money is actually saved rather than spent entirely.

The summer job isn’t just about earning money. It’s about understanding that paychecks carry obligations and that managing money means planning for taxes before they’re due.

Bottom Line

If you child wants to get a summer job, they’re already on the path to financial success. Not only does this allow them to gain experience in the workforce, it also shows them the kind of effort it takes to earn money. This will prove invaluable as your child graduates high school and makes their way into the real world.

Tax Planning Tips

• Having your child earn their own money from an early age can have major benefits for them later in life. However, the tax implications that come from earning this income may be difficult for you to deal with with them. A financial advisor can help you and your entire family manage your taxes. Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with financial advisors who serve your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
• Online tax software will likely be the easiest way for you and your child to file their taxes from their summer job. Check out SmartAsset’s list of the top online tax software to learn more.

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