Tax Impact Of Your Teen’s Summer Job

What job will your teen choose this summer? And what are the tax consequences? Here are typical employment scenarios.

  • The family business. Hire your under-age 18 child in your sole proprietorship, pay reasonable compensation for a legitimate job, and you may qualify for an exemption from social security, Medicare, and federal unemployment tax on the wages. This is also true for a single member LLC that’s taxed as a sole proprietorship, though not for corporations.
  • The entrepreneur. When your child establishes a sole proprietorship business to offer services from computer consulting to dog walking, regular self-employment tax rules apply. That means when net income from the business is more than $400, self-employment tax is due.
  • The domestic worker. Performing chores such as yard work and babysitting for the neighbors may trigger the household employee rules, sometimes called the nanny tax. This can be good news for your teen, as these jobs are typically exempt from social security and Medicare taxes when paid to workers under age 18 who are considered household employees.
  • The employee. A job at a retail store or restaurant generates earned income that is subject to employment and income taxes. Your child may need to file a federal income tax return when wages and tips are more than the standard deduction ($6,200 for 2014).

Whatever job your child tackles this summer, remember the “kiddie tax” does not apply to income earned from working. Please contact us if you have questions about other tax effects of a summer job.