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Do you have a devoted working or budding entrepreneur in your household? If your teen earned income in 2021, they might need to file taxes this year.
See: Teens & Taxes: What Documents Does Your Child Need to File Taxes?
Find: The 4 Best Bank Account Options for Kids and Teens
You might be surprised to learn that the earned income thresholds for whether teens need to file taxes or not are exactly the same as they are for adults. Both teens and single adults with a gross income that’s more than $12,550 will need to file a tax return. If a teen (or adult, for that matter) is blind, that threshold rises to $14,250.
If your teen worked a side gig, where they were paid as a 1099 contractor instead of as a W-2 employee, they must claim that money on tax returns if the total income exceeds $400. Your teen will need to file a Schedule SE with their 1040 tax form and pay self-employment taxes on that income.
If they earned $600 or more from any single source, your teen should receive a 1099-NEC form from the company that contracted the work. If your teen worked a gig in 2021, it might be wise to speak with a tax expert specializing in small businesses and independent contractors to help calculate any expenses they might be able to deduct from their income to reduce their tax bill.
If your teen had a small online shop or sold items through Facebook Marketplace, they will also need to declare that income. Beginning in 2022, payment platforms like PayPal and Venmo will issue 1099-K forms to people who receive payments of $600 or more for “goods and services” sold. But for the 2021 tax year, it’s important for online sellers to track this income and report it on their own.
There is an exception to the rule. If your teen decided to help you clear clutter by holding an online garage sale and selling used items, they don’t need to declare any income if they sold the items for less than their original purchase price. If they decided to ransack your attic and sell their old Ty Beanie Baby collection or collectible Star Wars LEGO sets that appreciated in value, however, they’d have to pay taxes on the profit.
See: Teens & Taxes: Quick Tips for First-Time Filers (and Their Parents)
Find: The Top 6 Financial Apps To Help Teens Learn More About Money
But let’s face it, owing taxes on a $7,199 Ultimate Collector’s edition Millennium Falcon LEGO set would be a nice problem for you and your teen to have.
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