Taxes for Kids Earning Money: When the IRS Cares (and When It Doesn't)

Your eleven-year-old made $312 babysitting over the summer. Your fourteen-year-old cleared $640 mowing lawns last August. Your sixteen-year-old has a regular W-2 job at the smoothie place plus a side thing tutoring algebra for $25 an hour. Three different kids, three different tax pictures — and most parents have a vague sense that “the IRS probably doesn’t care about kid money” without actually knowing where the line is.

In general, for most ordinary kid side-hustle situations, very little happens at tax time. No filing, no payment, no forms. But the lines where the IRS actually starts caring are clear once you know them — and one of them, the $400 self-employment threshold, catches families off guard every year because it kicks in before a kid would owe any income tax. This post walks through the general framework: how the IRS typically categorizes kid earnings, where the federal thresholds sit, why state rules vary, and what records are worth keeping even when nothing is owed.

This is generic background information about how the rules typically work — it is not tax advice for your kid’s situation. Read on with that framing.

A required disclaimer — please actually read this one

This post is general educational content. It is not tax advice. Tax situations are individual, and the rules described here are summarized at a high level for typical scenarios. Your family’s circumstances may be different in ways that materially change the right answer.

If your kid is earning meaningful money — anything beyond casual lemonade-stand or babysitting income — talk to a CPA or a qualified tax preparer about your specific situation. A one-hour conversation in the $200-$400 range pays for itself the first time it keeps you from missing a filing requirement or over-paying.

The IRS website (irs.gov) and your state’s department of revenue are the source of truth. Tax law changes every year — sometimes mid-year — and the numbers cited in this post reflect roughly the 2025 tax year as a reference point. By the time you read this, thresholds may have shifted. Verify current figures before acting on anything here. When in doubt, the answer is “ask a CPA,” not “trust a blog post from last year.”

Earned vs. unearned income — the foundational distinction

Almost every question about kid taxes starts with figuring out which bucket the money falls into. The IRS treats earned income and unearned income very differently, and the rules below all hinge on this categorization.

Earned income is money the kid actively worked for. Examples:

Babysitting, lawn care, pet sitting, snow shoveling
A paper route, a tutoring gig, a kid-run craft sale
Wages from a W-2 job (the smoothie place, the grocery bagger job, lifeguarding)
Self-employment income from a small business the kid runs (Etsy, dog walking, tech help for neighbors)

Unearned income is money the kid received without working for it. Examples:

Cash gifts from grandparents
Interest on a savings account
Dividends or capital gains from a UTMA / custodial brokerage account
Inheritance income

In general, the two categories trigger different tax mechanics. Earned income gets relatively favorable treatment under federal rules — kids who only have earned income can typically shelter a fairly large amount under their standard deduction. Unearned income above a low threshold can be subject to the so-called “kiddie tax,” which in some cases taxes a child’s unearned income at the parent’s marginal rate.

For most kid-side-hustle situations, the money in question is earned income. A kid running a lawn-care side gig, a babysitting business, or a tutoring practice is earning, not investing. Where unearned income usually shows up is in long-running custodial brokerage accounts that have been accumulating dividends for years — a different problem from “my kid made $400 mowing lawns.”

The federal thresholds (as a general reference)

These numbers shift every year. Treat the figures below as approximate 2025 baselines and verify current numbers on irs.gov before relying on them.

Standard deduction for dependents (earned income). In general, dependent children with only earned income can deduct an amount roughly equal to their earned income, up to the regular single-filer standard deduction (which sat around $13,850 for 2024 / $14,600 for 2025, and is adjusted upward each year). The practical implication: a kid who earns $1,200 babysitting over the summer has typically paid zero federal income tax. The standard deduction wipes it out.

Self-employment tax (the $400 threshold). This is the one most families miss. In general, if a kid nets $400 or more of self-employment income in a year, federal self-employment tax — the combined employee+employer portion of Social Security and Medicare, totaling roughly 15.3% — typically applies. Critically, this threshold is independent of the income-tax standard deduction. A kid can owe zero federal income tax and still be on the hook for self-employment tax above $400 of net earnings. “Net” here means revenue minus legitimate business expenses, which is why expense tracking matters even for small operations.

W-2 wages. A kid on a regular payroll job has FICA (Social Security + Medicare) withheld automatically by the employer. This is a different mechanic from self-employment tax — same underlying programs, but the employer is doing the withholding and remitting. Tip-heavy positions and certain “tipped employee” situations have their own quirks; consult a tax pro if relevant.

Unearned income / kiddie tax. Above a relatively low threshold (around $1,300 in 2025 for the first tier, with another tier above that), a child’s unearned income can be taxed at the parent’s marginal rate rather than the child’s. This rule mostly affects families with sizable custodial brokerage accounts, not families whose kid mowed lawns.

Again: these figures are 2025 reference points. Verify current numbers. State rules can differ.

State tax variation — a real factor

The federal picture above is only half the story. Every state writes its own rules.

Some states have no state income tax at all — Texas, Florida, Washington, Nevada, Tennessee, South Dakota, Wyoming, Alaska, and New Hampshire (the last of which has a narrow tax on investment income). In those states, the federal thresholds are the only thresholds that matter for the kid’s income side.

Other states have low filing thresholds, sometimes substantially lower than the federal standard deduction. A kid who comfortably falls under the federal threshold can in theory still trigger a state filing requirement, depending on the state. This is rare for typical kid side-hustle earnings but not impossible.

A second layer that catches families: sales tax on kid-sold products. If your kid sells cookies, slime, friendship bracelets, or crafts to neighbors, some states technically require sales tax collection on those transactions. Most states have a “de minimis” or hobby-income exception for very small operations, but the threshold varies, and a few states are stricter than others. If your kid graduates from “occasional bake sale” to “regular weekend craft fair vendor,” that’s a question to ask your state’s department of revenue.

The short version: check your state’s Department of Revenue website. The federal rules described in this post are the baseline; state adds on top.

Records to keep (the actually practical part)

Here’s where the real value of this exercise lives, regardless of whether any tax is owed.

A simple income ledger. Date, customer name, amount, payment method (cash, Venmo, Cash App, check). A single Google Sheet or a notebook works. The point isn’t bookkeeping perfection — the point is that the kid has a defensible record of what they earned, when, and from whom.

Expense receipts. What did the kid spend on supplies, advertising flyers, gas (if old enough to drive), tools, ingredients, packaging? These are legitimate business expenses that reduce net self-employment income — which matters the moment that $400 threshold is approached. Stuff receipts in a folder or photograph them into a Drive folder. Date and category are enough.

1099-NEC awareness. If the kid does $600 or more of work for a single client in a calendar year — for example, sixty hours of tutoring for one family at $10 an hour — that client may be required to issue a 1099-NEC at year-end. Most casual neighborhood gigs are way below this threshold per client, even when total earnings are larger. But it’s worth knowing the form exists.

Paper trail for custodial Roth IRA contributions. This one is underrated. If you ever consider opening a custodial Roth IRA for an earning kid — covered separately in our kid bank account: custodial vs joint post — you need documented earned income to defend a contribution if the account is ever questioned. A clean ledger of “Saturday Aug 14, mowed Hendersons’ lawn, $25, cash” makes the Roth contribution bulletproof. A vague “Mom thinks I made about $800 last summer” does not.

Records aren’t a tax-defense exercise for an eleven-year-old. They’re a habit-building exercise that incidentally also creates the documentation a CPA or auditor would want. Free upside.

Dependency status

Almost universally, kids earning their own side-hustle income still qualify as their parents’ dependents for tax purposes. The dependency test has income components, but for typical kid earnings — even into the low thousands per year — losing dependent status is not a realistic concern. The thresholds are well above what most middle- and high-school side hustles bring in, and the test has additional structure beyond just an income line.

A few situations can shift dependency status: a kid who moves out, becomes financially self-supporting, or has substantial unearned income from a trust. None of these are common for kids running ordinary side hustles. If you’re not sure, ask a CPA — losing dependent status meaningfully changes your own tax picture, so it’s worth a fifteen-minute conversation if the question is real.

When to actually talk to a CPA

In general, the situations where it’s worth the $200-$400 for a real conversation with a tax professional are:

Kid earnings approaching $5,000+ per year. Not because there’s a magic threshold, but because at that scale, intentional structuring (contributions to a custodial Roth, expense optimization, possibly a small business setup) can save more than the CPA costs.
A real business with multiple customers and equipment. A teen with an LLC, a website, a logo, and a customer list is no longer “casual side-hustle territory” — they’re a real small-business owner, and small-business tax rules are dense enough that DIY is risky.
You’re considering a custodial Roth IRA at meaningful scale. Anything above casual is worth running by a pro before contributing, because contribution mechanics and documentation requirements are easy to get wrong.
The kid is being paid as a 1099-NEC contractor by a family business. Paying your own kid through your own business is a legitimate and sometimes valuable strategy, but it’s a structurally specific one with documentation requirements and IRS scrutiny risk. Always a CPA conversation.

For occasional lemonade-stand earnings, casual babysitting, or a kid who mowed three lawns last summer, no CPA is needed. The IRS, in general, is not coming for thirty-eight dollars in cookie revenue.

💡 In the TaskTroll app: Log every side-hustle transaction with date + customer + amount — building the year-end records the IRS or a CPA would need without thinking about it. See tasktroll.com/entrepreneur.