Do You Pay Taxes on Money You Make From a Teen Business?
Yes, if your teen business makes money, you can owe taxes on it even though you’re a minor. Once your net self-employment profit hits $400 in a year, the IRS requires you to file a tax return and pay self-employment tax, and there’s no age exemption that gets you out of it. Being 15 doesn’t make the income invisible. What matters is how much you earned and what kind of income it is, not how old you are.
This is a plain-English explainer, not tax advice. Rules change and states add their own, so before you file, talk to a parent, and for real numbers talk to a tax pro or use trusted software. But learn the basics now, because “I didn’t know” is not a great look with the IRS.
Do minors have to pay taxes on business income?
There’s a myth in every high school: kids don’t pay taxes. It’s wrong. The tax code cares about dollars, not birthdays. A 16-year-old who nets $2,000 flipping thrifted clothes is treated a lot like a 40-year-old freelancer doing the same thing.
Here’s the key idea. Money you earn from a business is earned income (income from work you did), which differs from unearned income (money from investments). Earned income is where teen founders live, and it triggers filing requirements at surprisingly low numbers.
Two thresholds matter most:
- The $400 rule. If your net self-employment profit (what’s left after expenses) is $400 or more, you have to file a federal return and pay self-employment tax. This threshold is brutally low on purpose.
- The standard-deduction threshold. For regular earned income, you generally don’t owe federal income tax until you pass the standard deduction (a tax-free chunk in the mid-$14,000s for a single filer in recent years). That’s separate from self-employment tax.
The trap is that self-employment tax kicks in way before income tax does. You can owe money on a $500 profit even though you’d owe zero income tax at that level.
What counts as a business vs. a hobby?
This distinction decides how you’re taxed, so it’s worth getting right.
A hobby is something you do mainly for fun that occasionally makes money. A business is something you run to make a profit, consistently, like a real operation. If you sell one old skateboard on Facebook Marketplace, that’s not a business. If you’re buying, refurbishing, and reselling boards every month with the goal of profit, the IRS sees a business.
Why care? The label changes what you can deduct. Business income lets you subtract expenses before you’re taxed. Hobby income generally gets taxed without that ability to write off costs. Most founders actually trying to build something people pay for are running a business, not a hobby. If you’re still figuring out whether your thing is even real, start with how to validate a startup idea in high school before you worry about tax forms.
The rough test is intent and consistency: are you trying to make a profit, and do you operate like you mean it? If yes, you’re a business, and you get the good deductions along with the filing responsibility.
Self-employment tax vs. income tax: what’s the difference?
These are two separate taxes, and mixing them up is where teen founders get confused.
| Income tax | Self-employment tax | |
|---|---|---|
| What it funds | General government spending | Social Security and Medicare |
| Rough rate | 0% until you pass the standard deduction, then it climbs | About 15.3% of net profit |
| When it kicks in for you | After roughly $14,000+ of earned income | At just $400 of net profit |
| Applies to a typical teen founder? | Usually not, incomes are low | Yes, once you clear $400 |
For most high schoolers, the one you’ll actually pay is self-employment tax. With a normal part-time job, your employer quietly pays half of Social Security and Medicare for you. When you work for yourself, you pay both halves, which is why the rate feels high (about 15.3%). On $1,000 of net profit, that’s roughly $150.
That number stings, but notice it’s on net profit. Which brings us to the part that saves you money.
Expenses: the part that lowers your bill
You’re taxed on profit, not on total money that came in. So every legitimate business expense you track lowers what you owe. This is the single most useful habit to build early.
Say you earned $1,500 selling a Notion template and running ads. If you spent $200 on a design tool, $150 on ads, and $50 on a domain, your net profit is $1,100, not $1,500. You’re taxed on the $1,100.
Common expenses teen founders can usually deduct:
- Software and subscriptions you use to run the business (design tools, hosting, email tools).
- Advertising you paid for, like TikTok or Meta ads.
- Your domain and website costs.
- Materials and supplies if you make or resell a physical product.
- Fees from payment processors like Stripe or a marketplace’s cut.
The rule: keep receipts and a simple record from day one. A single spreadsheet with date, what it was, and how much works fine. Nobody remembers this stuff in April. If you’re trying to run lean anyway, how to build and run a startup for basically $0 will keep both your costs and your tax bill small.
What is a 1099 and will you get one?
If you sell through a platform, a form might show up in your name, and it can catch you off guard.
A 1099 is a form a company sends you (and the IRS) reporting how much they paid you during the year. If Stripe, PayPal, an app store, or a marketplace processes enough of your sales, they file a 1099-K or 1099-NEC. The important part: the IRS gets a copy too. So the income is already reported to them whether or not you remember it.
This is why “I’ll just not mention it” doesn’t work with platform income. If you got paid $1,200 through a processor and they sent a 1099, the IRS already knows the number. Your job is to match it on your return and subtract your real expenses so you’re only taxed on actual profit.
You don’t need a 1099 to owe tax, either. Cash from a lawn-care hustle or Venmo from customers still counts as income even if no form arrives. The form is just paperwork; the obligation exists regardless. If you haven’t sorted out how you’ll collect money yet, read how to accept payments when you’re under 18 and how to handle money when you’re under 18 first, because how you get paid affects which forms you’ll see.
How to actually handle this without stress
You don’t need to become an accountant. You need a few boring habits that make tax time a non-event.
- Track income and expenses from day one. One spreadsheet, updated weekly. This alone solves 80% of the pain.
- Set aside roughly 25-30% of profit. Park it in separate savings and pretend it’s not yours. That covers self-employment tax with room to spare, and getting money back later feels great.
- Save every form. Any 1099 that arrives goes in a folder (digital is fine). You’ll need the numbers.
- Loop in a parent early. As a minor, your return often ties to theirs, and they may need to help you file. If that conversation feels awkward, here’s how to talk to your parents about your startup.
- Use software or a pro once you clear $400. Cheap tax tools handle self-employment fine. Don’t wing a hand-calculated return.
None of this should scare you off building. Owing tax means you made money, which is the entire point. A tax bill is a sign the thing worked. The founders who get burned aren’t the ones who earned too much; they’re the ones who ignored it and got a surprise letter.
For the bigger money picture, how much money do you need to start a business in high school pairs well with this, and if you’re weighing whether a business entity even makes sense yet, read do you need an LLC as a teen entrepreneur.
The bottom line
If your teen business earns money, taxes are part of the deal. Clear $400 in profit and you file. Track expenses so you’re taxed on profit, not revenue. Expect self-employment tax before income tax. Save your 1099s, set aside a chunk, and pull a parent in. Do those five things and the subject shrinks from scary to routine.
Handling money like a real founder, tax part included, is exactly the muscle you build inside the batch0 program, where you take a company from idea to a live demo day pitch across four one-week sprints. You don’t need any of this figured out to apply; applying is free, and you’ll pick it up as you build.