It is not uncommon for teens and young adults to go into business for themselves over the summer or after school. This work can include babysitting, lawn mowing, dog walking, or other part-time or temporary work. When a teen or young adult is an employee of a business, their employer withholds taxes from their paycheck. However, when they are classified as an independent contractor or are self-employed, they’re responsible for paying taxes themselves.
Rule of Thumb
1. Keep records. It’s good to make and keep financial records and receipts throughout the year, if you are a young entrepreneur. Recordkeeping can help track income and deductible expenses and provide the information needed for a tax return.
2. Pay estimated tax, if required. If a teen or young adult being claimed as a dependent expect to owe at least $1,000 in tax for the year in which they worked, they must make estimated quarterly payments. They should pay enough tax on time to avoid a penalty. They can use one of these forms to calculate their estimated taxes:
3. If a taxpayer also has a job where their employer withholds tax, they can request that their withholding be increased to cover their estimated taxes from their self-employed income. That way, they don’t have to pay estimated tax separately. The Tax Withholding Estimator on the IRS website is a great tool to help wage earners figure out how much they should be withholding.
4. File a tax return. When tax season rolls around, young taxpayers can review the information and forms, gather their records, and e-file their tax returns. When preparing to file a tax return, they should review all their records, including any estimated tax they’ve already paid. If people owe taxes, they can pay electronically through Online Account and IRS Direct Pay.
As always, if you need assistance with these and other tax issues, please contact our office.
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