Income tax withholding in the United States began in the 1940s to collect taxes throughout the year, rather than collecting one large lump sum at the end of the year. The government convinced the general population to switch to a pay-as-you-go system by waiving the annual income taxes for 1942, but requiring tax withholding to begin that year. Today, the Internal Revenue Service requires that employers withhold money from their employees' paychecks to pay for taxes.
Age Does Not Matter for Income Taxes
The U.S. tax code applies to people of all ages. The IRS does not have a minimum age at which withholding must begin. Instead, withholding starts when the person makes enough money to have income tax liability, even if the person is a teenager. If you make enough money, the federal government will want its share regardless of your age unless you qualify for an exemption. The IRS does have an exception for Social Security and Medicare tax withholding for people age 18 and under who work as household employees as a their principal occupation. Household employees include housekeepers, lawnmowers and babysitters. This exception also applies to newspaper carriers.
When a teenager works for an employer, the teenager has to complete a Form W-4 that tells the employer how many allowances the teenager claims. Each allowance claimed reduces the amount of withholding. Examples of withholding allowances include working only one job, not being claimed as a dependent or having dependents of your own who you will claim on your income tax return. All employees, not just teenagers, must file a Form W-4 with their employer. If you work as an independent contractor or are self-employed, you will not have money withheld from your pay, but you may have to make estimated tax payments to cover income taxes or self-employment taxes.
Minimum Income for Filing a Tax Return
The standard deduction equals the minimum amount that someone has to make in order to be required to file an income tax return. As of 2011, the standard deduction equals $5,800. Therefore, if a teenager expects to earn less than the standard deduction amount, and did not have any tax liability for the prior year, the teen can write "exempt" on line 7 of the Form W-4 and no federal income tax will be withheld. Anyone who meets the criteria may claim the exemption, regardless of age. This exception can often apply to teens working just during the summer because they do not make as much as someone working year-round. If a teen works year-round, however, the teen may make too much money to be eligible for the exemption from withholding.
Reporting Withholding on Your Taxes
Income taxes withheld decrease your taxes due at the end of the year. If you have more withheld than you owe, you get a refund. If you have money withheld, but do not owe any income taxes, you should still file an income tax return so that you can receive a refund. For example, if in 2011 a teenager who makes $4,000 and has $300 withheld, but owes no taxes, would receive a $300 tax refund after filing a return in 2012.