A Parent’s Guide to Summer Employment for Children: Tax Strategies & Wealth-Building Tips
Summer jobs are more than just an avenue for your child to earn extra money—they lay the groundwork for lifelong skills, professional confidence, and financial literacy. As small business tax experts at Tax Time 365, a virtual firm specializing in compliance for entrepreneurs and families across the United States, we recognize the unique opportunities and tax implications that accompany summer employment for children. Leveraging these opportunities strategically can foster both personal growth and long-term financial security for your child.
Tax Advantages for Young Earners in 2025
With the standard deduction for single filers rising to $15,000 in 2025, your child can earn up to $15,000 from summer work without incurring federal income tax liability. This increased threshold makes it an opportune time to encourage your child to seek meaningful employment, save toward their goals, and gain invaluable experience.
Beyond the immediate cash benefit, children can jump-start retirement savings by contributing the lesser of $7,000 or their annual earnings to an IRA. If you’re considering which IRA is optimal, a Roth IRA generally provides greater future benefit due to its tax-free growth and qualified withdrawals, though contributions are not deductible. For a tax deduction, a Traditional IRA enables earning up to $22,000 tax-free by combining the standard deduction with the maximum allowed contribution for 2025. If your child wants to keep all their earnings, consider gifting the IRA contribution, effectively launching their retirement nest egg.
Popular Summer & Part-Time Jobs: Income and Reporting Requirements
- Fast Food Services – These positions serve as an entry point for many teens, building professional habits and exposing them to payroll tax withholding. Employers issue a Form W-2; tips received should also be tracked and reported.
- Babysitting – Provides training in responsibility and basic childcare, but most babysitters will not receive W-2s. Nevertheless, income remains reportable if total annual earnings exceed the filing threshold.
- Lawn Mowing & Gardening – Great for entrepreneurial kids interested in managing their own micro-business. Earnings are taxable and should be tracked, with W-2s issued only if working for a company rather than directly for clients.
- Lifeguarding – Older teens benefit from paid pool or beach positions, requiring certifications and providing official employment status (W-2 issued).
- Pet Sitting & Dog Walking – Instills empathy and responsibility. While not subject to payroll taxes via W-2, net earnings are still taxable if income exceeds the filing requirement.
- Art & Craft Sales – Encourages creativity and entrepreneurship. For hobbyists, all proceeds are reportable. If operated as a business, only net profits (income minus expenses) are taxable.
- Online Tutoring – Enhances academic mastery and communication skills. Track all payments for year-end reporting purposes.
- Social Media Management – Digital-savvy teens can help local businesses grow online. Employees receive W-2s; freelance income must be self-reported.
- App & Game Development – For tech-inclined youths, this teaches coding and monetization skills. Whether hobbyist or business, all earnings should be documented.
Tax Efficiency: Hiring Your Child in Your Business
If you’re a small business owner, summer is the perfect season to integrate your child into your operations. By employing your child in a legitimate role with reasonable wages, you can convert what would be personal, after-tax support into tax-deductible business expenses, lowering your self-employment income and associated tax burden.
Example: Suppose you’re in the 24% tax bracket. You pay your child $16,000 for the year, reducing your taxable income by the same amount and saving $3,840 in federal income tax. With 2025’s increased $15,000 standard deduction, your child’s taxable income is only $1,000—at a mere $100 tax liability.
For unincorporated businesses, children under age 18 are also exempt from Social Security and Medicare taxes (FICA), reducing both your business and your child’s payroll tax exposure. Additionally, federal unemployment tax (FUTA) is not due on wages paid to your child under age 21 in these setups. Remember, these payroll tax exemptions do not apply to incorporated businesses or partnerships with non-parent partners.
Jumpstart Retirement Savings: The Power of Early IRA Contributions
Combining strategic summer employment with proactive IRA contributions can set your child on a path to lifetime wealth accumulation. Contributing even a modest amount to a Roth or Traditional IRA in their teen years can grow to significant sums by retirement, thanks to years of compound interest. If your child is hesitant, family members (including parents or grandparents) may gift the contribution to reinforce a savings habit.
Additional Benefits of Summer Jobs for Young People
- Skill Development: Building communication, teamwork, and problem-solving abilities.
- Financial Literacy: Learning budgeting, saving, and responsible money management.
- Work Ethic: Fostering discipline and the value of consistent effort.
- Independence & Confidence: Encouraging personal responsibility in new environments.
- Tax Education: An introduction to tax compliance, reporting, and financial documentation for young earners.
In summary, summer jobs offer invaluable opportunities beyond a paycheck, from tax-smart savings to foundational life experience. At Tax Time 365, we help families and small business owners across the U.S. navigate the complexities of youth employment, tax compliance, and intergenerational wealth building. If you have questions about employing your child or tax planning strategies, contact our virtual team today.
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