Tax-Advantaged Strategies and Skill Development: Making the Most of Your Child’s Summer Employment

Summer jobs for children and teens are more than just a way to earn extra spending money—they present unique opportunities to develop crucial life and financial skills. For parents and young earners alike, understanding the tax implications and leveraging available planning strategies can turn a simple summer job into a foundation for lifelong financial success.

Tax Benefits for Young Earners in 2025

As the new tax year approaches, it’s important for families to understand the recent changes. For 2025, the standard deduction for single individuals will rise from $14,600 to $15,000. This means your child can earn up to $15,000 without incurring federal income tax liability. In addition, children can contribute the lesser of $7,000 or their total earned income to an IRA, enabling them to potentially shelter up to $22,000 from taxes if they select a deductible traditional IRA.

However, parents and accounting professionals often recommend a Roth IRA for young workers. While contributions to Roth IRAs are not deductible, the long-term benefit of tax-free growth and distributions can be significant—particularly for those with decades to retirement. If your child isn’t ready to part with their summer earnings, consider gifting the IRA contribution to establish strong savings habits early.

Popular Summer Jobs for Kids—And Their Tax Considerations

Fast Food Services: These roles provide important entry-level experience. Earnings are reported on Form W-2, and tips may require separate tracking for proper tax compliance.
Babysitting: While babysitters rarely receive a W-2 since they are often paid as independent contractors, income may be reportable if annual earnings exceed the filing threshold.
Lawn Mowing & Gardening: Entrepreneurial children offering these services independently should keep detailed records for income reporting, whereas those working for companies will typically receive a W-2.
Lifeguarding: Older teens with required certifications can earn W-2 wages as official employees.
Pet Sitting & Dog Walking: Typically not W-2 positions—income is reportable and may be subject to self-employment taxes above certain thresholds.
Art & Craft Sales: Creative endeavors sold online or at markets must be tracked for hobby/business income reporting; if net profits exceed the standard deduction, taxes may apply.
Online Tutoring: Academic achievers earning income online should maintain precise earnings documentation for accurate reporting.
Social Media Management: Teens freelancing for local businesses must document income for tax compliance. W-2s apply if hired as an employee.
App or Game Development: Whether as a hobbyist or business venture, income from digital creations may be taxable and should be properly tracked.

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Understanding these distinctions is crucial—especially for tax planning and compliance. A CPA or experienced tax preparer can provide guidance customized to each scenario, ensuring compliance and maximizing deductions.

Tax Planning Opportunity: Employing Your Child in Your Business

If you own an unincorporated business, employing your child is a powerful tax-planning tool. Wages paid to your child are deductible business expenses, effectively lowering your taxable income and shifting some income to your child’s lower tax bracket. For children under 18, these wages are exempt from both FICA (Social Security and Medicare) and FUTA (federal unemployment) taxes—provided the business is unincorporated or a partnership solely between parents.

For example, if you are in the 24% tax bracket and pay your child $16,000 in 2025, you save about $3,840 in federal income tax. Only $1,000 is taxable to the child after the standard deduction, resulting in just $100 of income tax owed. Additionally, this payment reduces your self-employment tax base, further lowering your overall tax burden. Strategic retirement plan contributions (ideally to a Roth IRA) may eliminate the tax bill entirely while jump-starting your child’s retirement savings.

Broader Benefits of Summer Employment

Skill Development: Communication, teamwork, and analytical thinking.
Financial Literacy: Early lessons in budgeting, saving, and investing.
Work Ethic: Understanding responsibility and discipline.
Confidence & Independence: Exposure to real-world challenges and accomplishments.
Tax Awareness: A practical introduction to the federal and state tax systems and documentation requirements.

At Haley Claypool & Associates, we encourage families to leverage these summer opportunities to teach children about workforce dynamics and tax-smart financial habits. With professional accounting guidance, your child’s summer income can offer lasting benefits well beyond the current year.

Have questions about hiring your child, summer employment tax implications, or optimal financial strategies for young earners? Contact Wendy Claypool at Haley Claypool & Associates, Newport Beach, CA, at 818-338-8700 or wendy.claypool@ipersyst.com. Let’s make summer work smarter for your family.

Have Questions?

Let's talk. We are here to help!

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