Summer Jobs: What Teens Need to Know About Taxes
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Here's your Money Briefing for Monday, May 23rd. I'm J.R. Whelan for The Wall Street Journal. School's out, and many teens are about to start their summer jobs.
What taxes and deductions should teens expect from their first paycheck?
Getting a taste of the working world has clear benefits, like money. This year, they could be making more than ever. But those paychecks can also be tricky.
There will be deductions for federal income taxes and maybe state income taxes and maybe also for payroll taxes like Social Security and Medicare. And that surprises the kids a lot of times because they say, why did they take so much out?
We'll call on WSJ tax reporter Laura Saunders to talk about what teens and their families need to know about taxes and more after the break.
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We've discussed on the show before how teen unemployment is near its lowest level in decades as businesses look to hire them and pay decent wages to help fill a record number of open positions. And as many teens across America are about to begin their first summer jobs, they'll not only get their first taste of the working world, but also their first experience with Uncle Sam grabbing a chunk of their weekly check. So what should they expect? Wall Street Journal tax reporter Laura Saunders joins us to discuss. Hey, Laura, thanks for being with us.
And thank you for having me.
You know, Laura, teen jobs used to be minimum wage, but in many states, that's $15 and up. And I can already see kids starting to do the math. I work 40 hours at $15 an hour. That's $600 a week. And then they get their paycheck. So, Laura, what should they be expecting?
Well, if the teen worker is an employee, then they'll be getting a paycheck that looks a lot like other people's. It will have a W-2 form. There will be deductions for federal income taxes and maybe state income taxes, and maybe also for payroll taxes like Social Security and Medicare. And that surprises the kids a lot of times because they say, why did they take so much out? But there's something tricky for these teen workers, which is they don't owe federal income tax on income up to nearly $13,000 if they're single. Above that, the income tax rates kick in at 10%. Now, this is also true, but in a different way for self-employed workers. That means gig workers or workers for hire who are not technically employees.
Oh, how are things different for them?
they might not see any deductions in their check. Well, what does that mean? That means that they may owe taxes even though they haven't been taken out. Now, they may not owe income taxes because there's that exemption of nearly $13,000. And they also get to deduct some expenses, but they will owe payroll taxes. That is for Social Security and Medicare. Also, this will not be reported on a W-2 form. It will be reported on a 1099 form. And it's really just gross pay. But the IRS is going to hear about that as well as the worker. And so they might come back and say someday and say, where's your tax return? Did you pay the taxes you owe?
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