Understanding Taxes: What Every Young Earner Should Know

26 September 2025

Ah, taxes. Just saying the word is enough to make most adults sigh. But what if I told you that understanding taxes isn’t as scary or complicated as it seems—especially when you're just starting out in the working world? If you're a teenager with a part-time job, a college student doing remote gigs, or a young adult navigating your first salary, you're probably wondering: “Why is money being taken from my paycheck? Where does it all go? Do I even need to file taxes?”

Grab a cup of coffee (or maybe a hot chocolate), because we’re diving into the world of taxes—no confusing jargon, no soul-crushing spreadsheets—just real talk about what every young earner like you should know.

🤔 What Are Taxes, Really?

Let’s start with the basics. Taxes are mandatory payments you make to the government. Think of them as your contribution to keeping the country running—like a subscription fee for living in society.

Without taxes, we wouldn’t have public schools, street lights, or hospitals. Taxes fund essential services like the police, fire departments, the military, Social Security, and public transportation. So, while it might sting to see less money on your paycheck, those deductions are doing some real good.

💰 Why Am I Paying Taxes?

Picture this—your first paycheck arrives. You were expecting $500, but it’s more like $410. What gives?

Welcome to withholdings, the money taken out of your paycheck before it even hits your bank account. These withholdings go toward:

- Federal income tax (based on how much you earn)
- State income tax (if your state charges one)
- Social Security tax (for retirement and disability benefits)
- Medicare tax (for health coverage for the elderly)

Yep, even if you’re only working weekends at a café or doing freelance design work online, the IRS expects its share.

🧾 What's the Deal with Filing Tax Returns?

Here’s the kicker: even when money is taken out of your paycheck, you might get some of it back. That’s where tax returns come in.

Think of tax filing like “checking the math.” You (or your tax software) figure out how much you should’ve paid in taxes for the year. If you overpaid, you get a refund. Underpaid? Well… you owe Uncle Sam.

And don’t worry—you’ve got options when it comes to actually filing:
- Use free online software (like IRS Free File or TurboTax Free Edition)
- Hire a tax pro (if your taxes get more complicated)
- File manually (old school, but still an option)

🧒 Am I Even Required to File Taxes?

This depends on a few things like your age, income, and employment type. Here's a quick cheat sheet (based on recent IRS guidelines):

- Earned less than $13,850 in a year (as a single dependent)? You probably don’t need to file—unless self-employed.
- Made more than $400 from freelancing or side hustles? You’re legally required to file.
- Had taxes withheld from your paycheck? File anyway—there’s a good chance you’ll get a refund.

Pro tip: Keep those W-2s and 1099s you get in January. They’re gold when it’s time to file.

🛠 Self-Employment Taxes: The Freelancer’s Wake-Up Call

So you're making money on YouTube, selling crafts on Etsy, or doing graphic design on Fiverr? That's amazing—but the IRS sees you as self-employed.

And here's the kicker: when you're self-employed, you have to pay both the employer and the employee portions of Social Security and Medicare taxes. That’s known as the self-employment tax, and it’s 15.3%.

Ouch, right? But don’t worry, you can also deduct expenses like supplies, software, or even a portion of your internet bill, which brings your taxable income down.

🧠 Understanding Tax Forms Without Losing Your Mind

Don’t worry—this isn't as bad as it seems. Let’s break down the forms you’re most likely to see:

- W-2: Got this from your employer? Great! It shows your income and how much tax was withheld.
- 1099-NEC: Did freelance work? Clients may send you this if they paid you over $600.
- 1098-T: You're in school? This form shows tuition payments and may qualify for education credits.
- W-4: Filled it out when you got hired? It tells your employer how much tax to withhold.

You’ll typically use these forms to file your taxes. Just keep them safe and handy around tax season.

🧮 What Are Tax Deductions and Credits?

Imagine going to a coffee shop, and the barista says, "You’ve got a discount today." That’s kind of what deductions and credits do for your taxes.

- Deductions reduce your taxable income. The less income the IRS can tax, the smaller your bill. Common example? The Standard Deduction (which for 2024 is $13,850 for single filers—check the current rate each year).
- Credits actually reduce your tax bill dollar-for-dollar. Some are even refundable, meaning if your tax bill goes below zero, you get money back.

Some credits young earners might benefit from:
- Earned Income Tax Credit (EITC) – for lower-income workers
- Lifetime Learning Credit – if you’re paying for college or training
- Saver’s Credit – if you’re contributing to a retirement account like a Roth IRA

💬 What’s the Difference Between Gross and Net Income?

Here’s a little vocab that’ll help you decode your paystub:

- Gross income = What you earn before taxes.
- Net income = What you actually take home—after taxes and deductions.

So, if your job pays $15/hour and you work 20 hours a week, your weekly gross income is $300. But if your paycheck says $240, that’s your net income.

Always plan your budget based on your net income—it’s your real spending power.

💥 Mistakes That Young Earners Should Avoid

Let’s be real—taxes are confusing, especially when you’re new to the game. Here are a few avoidable slip-ups:

1. Ignoring Tax Forms

That W-2 or 1099 isn’t just junk mail—it’s essential come tax time.

2. Filing Late

The IRS doesn't like to be ghosted. Late filing can lead to penalties and interest.

3. Not Reporting Side Income

Yes, even Venmo payments for your dog-walking gig or that TikTok sponsorship count as taxable income.

4. Skipping State Taxes

Some states require you to file a separate return. Don’t forget!

5. Paying Too Little Estimated Tax

If you're self-employed and not paying quarterly, you might owe a big chunk in April.

💡 A Few Pro Tips to Make Tax Season Easier

You're not alone in this. Here's how to make things smoother:

- Start a folder (digital or physical) for tax-related documents throughout the year.
- Use a budgeting app to track income and expenses.
- Consider opening an IRA – even a small contribution helps, and you might get a tax break.
- Ask for help – your parents, school advisors, or even free IRS tools are there for a reason.

🧳 What If I’m Still a Student?

Being a student doesn’t mean you're exempt from taxes. But it does mean you might get some sweet tax breaks:

- Tuition and fees deduction or education credits
- Student loan interest deduction (even if you’re just starting repayment)
- If your parents still claim you as a dependent, it could affect whether you need to file or not.

Always clarify who’s doing the claiming—you or your parents—so you don’t both end up in tax trouble.

🌟 Final Thoughts: The Power of Being Tax-Literate Early

Understanding taxes isn’t just about filing once a year. It’s about taking control of your financial life. When you know how taxes work, you can:
- Budget better
- Maximize your refunds
- Avoid nasty surprises
- Plan for the future

And the truth? The earlier you get comfortable with this stuff, the easier it will be later when things get more complex—like marriage, kids, or buying a house.

So don’t fear taxes. Face them head-on. You’ve got this.