The two main types of income are earned income and unearned income. Unearned income is income that comes from dividends, interest, or investment gains. In other words, the income was not directly earned by the work your child performed. This type of income in unlikely to be the source of your teenager’s summer pay, but it is still important to keep in mind. Earned income is the income directly attributable to the work you perform. It is likely that most (if not all) of the earnings from summer employment will be considered earned income.
For both earned and unearned income there are limits that your teenager must reach to determine whether or not they need to file. For unearned income, a child must file a return if the unearned income is more than $1,100. For example, suppose your teenager had a savings account that earned interest, or maybe even a brokerage account that was set up for them containing stocks that paid dividends. If the total unearned income for these accounts was $1,010, there would be no need to file a return.
Regarding earned income, if your ambitious teenager diligently worked to save for that car, he or she would only need to file a return if their earnings are more than the standard deduction for that year. Recently changes to the tax law have almost doubled the standard deduction for single filers. In 2019, your teenager would not have to file a return unless they earned over $12,200 ($350 plus all earned income up to the limit of $12,200).
But what if your teenager actually had both earned and unearned income? If this is the case, there are additional rules that apply. In 2019, if your child has earned and unearned income they must file if the total income between the 2 sources is more than the larger of either (1) $1,100 or (2) total earned income (up to 11,850) plus $350. For example, let’s say your dependent child received $400 of taxable interest income (unearned) and also earned $5,100 from a summer job. They would not need to file a return because both his earned and unearned income is below the minimum income to file taxes.
Even if your child does not meet any of these requirements, they should still consider filing if income tax was withheld from those payments. They may be owed a refund!