When your teenager looks at their first paycheck they will probably notice that some of their money was taken out. While it’s never too early to learn about taxes, it’s especially important when your teen is working that they become familiar with the basic rules of taxes. Having conversations with your teenager and discussing taxes is not only important to understanding what they are about, but it also helps your teen build confidence. Tax professional David Stewart outlines some of the most significant things you should explain to your teenager to help them understand taxes.
If your teen works, they will have to pay taxes
When paying income tax, age is no factor. If your teenager works for a company, they will see taxes taken from their paycheck. Your teen should also know that the higher the pay, the more taxes will be taken out of their pay. Also, if your teen makes over a certain amount of money in a year, they will have to file an income tax form and pay taxes on that amount.
“Under the table” jobs are considered earned income by the government
If your teen earns an income by babysitting or mowing lawns, they will have to pay self-employment taxes if the amount is above what is set for that year.
Lots of tax forms and paperwork are involved
When it comes to taxes, there certainly is a lot of paperwork and forms involved. When your teen first gets a job they will have to fill out a W-4 and when they get paid they will receive a pay check stub. If your teenager did self-employment work such as landscaping, they will have to fill out a Schedule C form. Show them each of the forms and explain to them how to go about filing them correctly.
What does the government do with the tax money?
It’s not uncommon for a teenager to ask, “Why does the government take money from my paycheck and what do they do with it?” Taxes are the government’s source of income and are used to fund government activities and services such as military spending, law enforcement and national highway repairs. You should inform your teen of the importance of these services and how they benefit everyone.
By explaining this important tax-related information with your teen, they will have a better understanding of taxes and how taxes influence and affect them.