Do High School Students Have to File a Tax Return?

Do High School Students Have to File a Tax Return?
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Your first job can be exciting until that first check arrives. Instead of the $100 or so you thought you’d earn, you see that all kinds of taxes have been taken out. Even more surprises come in mid-April when you face the dilemma of whether to file your first tax return ever.

The good news is you may not have to file, depending on how much money you made during the tax year. If you were only working a part-time job, you may not have earned enough money to require filing taxes. Even if you do have to file, you’ll likely find the process is extremely easy, since you’ll qualify to use the IRS’s Free File service.

Student Filing Requirements

A high school student only files a tax return if she earned the IRS minimum for the year. As of 2020, IRS Publication 501 states that students can earn ​up to $12,200​ without filing a tax return. A student making only the federal minimum wage of $7.25, working 20 hours per week, will see an annual income of only $7,540. If you earned ​$600 or more​ in non-cash payments during the year, your employer should send a Form W-2 in ​late January​ or ​early February​ that gives you all the information you need to fill out your tax return.

High school students who receive payment only from unearned income, such as Social Security payments or investments, won’t have to worry about a tax return unless the total amount received ​exceeds $1,100​. But once a teen starts working, that combination of unearned and earned income could require him to file. A teen must file taxes if unearned income was ​over $1,100​, earned income was ​greater than $12,200​ or the amount of earned and unearned income together equal the greater of ​$1,100​ or the ​total earned income plus $350​.

In other words, if the child received $200 of unearned income and $2,800 from a part-time job, he would not have to file a return because altogether, his $3,000 in earnings did not exceed $3,150.

Claiming Multiple Jobs

During high school, teens are actually more likely to have multiple employers in a tax year. A student may have one part-time job as a pool lifeguard in the summer and another at a Christmas tree lot during the holiday break from school.

Here it can get tricky because a teen may not know how much to withhold to ensure she doesn’t owe money at tax time, especially if she later finds that one of her employers wasn’t withholding taxes. You’ll still be responsible for paying those taxes, plus penalties, even if you had no idea taxes weren’t being taken out.

Entering multiple W-2s on a tax return is simple. You’ll just need to total the income from Box 1 on your W-2s and input the amount on Line 1 of your 1040. This will give you the adjusted gross income you need to report to the IRS. Whether you’re filling out a Form 1040 or using tax preparation software, you can get these amounts in a matter of seconds.

Using the IRS's Free File

If you have to file taxes, the easiest way to do it is to take advantage of IRS’s Free File, which is designed for those with simple tax returns. You’ll be asked a series of questions that will provide the answers necessary to find the perfect tax return for your situation. Chances are, you’ll be filing a simple 1040. By using Free File, you’ll also be submitting your return electronically, which means you’ll probably get a refund ​within 21 days​, if you’re expecting one, as opposed to ​six weeks​ or longer if you submit by paper.

Several commercial tax preparation services also offer simple tax return options. H&R Block will let you snap a photo of your W-2 and upload it. The information will be put in the proper fields and you’ll be asked some clarifying information to finalize your forms and submit them. TurboTax also offers a free filing option, operating similarly to H&R Block’s free service, and it includes free advice personalized to your own unique situation.

Understanding the 'Kiddie Tax'

Not so long ago, taxes for high school students with unearned income were complicated by something called the “kiddie tax.” Before the Tax Cuts and Jobs Act, a child’s unearned income ​over $2,100​ was taxed at the parent’s tax rate. This was to prevent parents from shifting investments to their children for a tax discount.

However, the new tax law changed all of that, assigning children the tax rate for trusts. This will bring slight savings to children who earn income from investments and Social Security in an amount that triggers a tax return.

According to the IRS, the 2020 tax brackets on trusts are as follows:

  • Unearned income of $0-$2,600: ​10 percent
  • Unearned income of $2,601-$9,450: ​24 percent
  • Unearned income of $9,451-$12,950: ​35 percent
  • Unearned income of more than $12,950: ​37 percent

Taxes for Self-Employed Teens

If you’re an entrepreneurial type who freelances or runs your own business, the minimum income to file taxes is dramatically different. Some employers may even treat you as an employee while classifying you as an independent contractor to remove the obligations that come with taking on employees. Whether you work independently by choice or by your employer’s requirement, it’s important to know that you will be responsible for paying taxes, plus possible penalties at the end of the year.

If you earn ​more than $400​ from self-employment, you’ll be required to file a tax return. Even if you only earn $20 from each person who pays you, you’re responsible for reporting the wages you earn from the IRS if your total yearly income ​exceeds $400​. Those who paid you aren’t required to send a Form 1099-NEC unless you made ​$600 or more​ with them during the tax year, but you could get in trouble for not reporting every dollar you earned.

This means you should either save all of your checks or track each payment somehow. You also may owe penalties on the taxes you didn’t pay throughout the year, so the IRS recommends paying quarterly if your tax bill will be high in April.

Itemizing Deductions for Teens

Teens working as independent contractors also qualify to itemize deductions, although this might involve using fee-based tax preparation software or paying a tax professional. A teen who mows yards on weekends can deduct the cost of equipment, gas and supplies, as well as mileage to get from one job site to the next. Every dime you can add up in that deduction column reduces the amount of your earnings subject to being taxed.

One fun thing about deductions on your taxes is that you may be able to claim at least a portion of items like your smartphone and internet, provided you’re using them for business purposes. If you’re primarily using them for personal activities or schoolwork, you’ll need to determine the percentage of business use and deduct that.

Cash Through Self-Employment

What if your job is something that doesn’t earn a paycheck, like babysitting or an after-school dog-walking job, and what if all your payments came in the form of cash? You don’t have to report those payments unless your total earned income for the year was ​more than $12,200​, but if you’ve been a busy worker this year, get your tax forms ready.

You’re officially self-employed, which means you’ll need Schedule C. Here you can claim the money you earned during the year. If you see early on that you’re going to reach ​$12,200​, you may want to use Form 1040-ES to estimate your tax obligation for the year and send quarterly payments to avoid penalties.

Cash Through Regular Employment

For high schoolers, though, most students find their cash payments come while working as an employee. These are primarily in the form of tips, whether you’re working as a server in a restaurant or washing cars during the summer months. Yes, you are required to pay taxes on every dollar in tips you earn, even though there is no way for the IRS to necessarily know if you’re claiming every dollar.

You should be reporting these cash payments throughout the year so your employer can withhold taxes on them, and your employer should be monitoring to make sure you’re being honest. According to the IRS, employers are required to ensure that reported tips are at least ​8 percent​ of total receipts for that period anyway, so you likely wouldn’t get away with underreporting for long.

If you’re claiming tips throughout the year, it will show up on your W-2, but it’s best to track it yourself and make sure it matches when you get your form. If there is any unreported tip income, don’t sweat it. You just enter that information on Form 4137.

Getting Your Refund

If you’re filing taxes, one challenge you’ll face is getting your tax refund. A student tax refund can’t always be deposited in a bank account since not all high schoolers have one. Having a bank account makes things easier and quicker, but it isn’t a requirement. You can always opt to have your refund sent by check, which you can then deposit into a parent’s bank account or get it cashed.

Of course, there are many options for teen bank accounts, which come with debit cards that can teach you great spending habits. Your refund check may be the perfect time to establish such an account. If you have a part-time job, you’ve likely already been dealing with issues associated with not having a bank account since many employers prefer to deposit checks directly into an account rather than issue paper checks. By getting started with an account, you can then have one in place for next year’s tax return.

Preparing for Next Year

Once you’ve filed for the first time, you’ll know what to expect next year. It’s the perfect time to double-check your withholdings and adjust them upward or downward if your refund wasn’t what you wanted it to be.

If you were self-employed in the previous tax year and you plan to continue to work that way, it’s time to set up estimated tax payments. Using Form 1040-ES, input what you expect to make this year. You’ll then get a recommended amount that you can pay four times.

Then set aside about ​25 percent​ of everything you make to pay income and self-employment taxes. This will ensure you’re never hit with a big tax bill at once that you can’t afford to pay.