Teaching teens about taxes is a critical first step in developing long-term financial literacy—especially when they receive their very first paycheck from a part-time job or internship. As a parent, guardian, or financial mentor, you play a key role in helping them understand how the tax system works, why certain deductions appear on their pay stub, and how this knowledge will benefit them throughout life.
As of 2025, the U.S. tax landscape continues to evolve with inflation adjustments, digital tax documentation, and increased monitoring of electronic financial transactions. For that reason, early financial education is more important than ever to help the next generation make informed, responsible money decisions.
Why Isn’t Their Paycheck Full? The Basics of Tax Deductions
Teens often feel confused or disappointed when they notice their net pay is smaller than expected. This is the perfect moment to teach the basics of taxation, including federal income tax, state income tax (where applicable), and mandatory contributions to federal programs like Social Security and Medicare, under the Federal Insurance Contributions Act (FICA).
In 2025, the FICA tax rate remains at 7.65%—6.2% for Social Security and 1.45% for Medicare—automatically withheld from employee wages. Employers match this amount. This presents an opportunity to explain how these programs provide essential support to retirees, individuals with disabilities, and families of deceased workers.
The W-4 Form: The Starting Point for Tax Withholding
Every new employee must complete Form W-4 (Employee’s Withholding Certificate) to inform their employer how much federal tax to withhold from their paycheck. When teaching teens about taxes, take time to walk them through this form, including:
- Personal information (name, address, and Social Security number),
- Filing status (single, married, or head of household),
- Number of dependents, and
- Additional adjustments, such as extra income or deductions.
In 2025, digital W-4 filing has become standard, with many payroll systems offering smart online completion tools that update in real time.
For teens with annual income below the 2025 filing threshold ($13,850 for single filers), filing a tax return may not be required. However, the IRS still recommends doing so to claim any potential refunds due to over-withholding.
The W-2 Form: Annual Tax Summary Worth Reviewing
At the beginning of each year, employees receive Form W-2 (Wage and Tax Statement) from their employer, detailing how much they earned and how much tax was withheld. This form is essential for filing a tax return and offers a clear summary of annual withholdings.
When teaching teens about taxes, guide them through key fields on the W-2:
- Box 1: Total taxable wages,
- Box 2: Federal income tax withheld,
- Boxes 4 & 6: FICA contributions,
- Additional info such as bonuses or tips, if applicable.
Understanding this form helps teens connect their paychecks to the broader role of taxes in society—and to their own financial obligations.
Encouraging Digital Tax Literacy
In 2025, tools like IRS Direct File—now expanded beyond its initial pilot—are making online tax filing easier than ever. Encourage teens to create an IRS online account, where they can check their tax history, file returns, and update their W-4 settings securely.
Many financial apps and digital banks now include built-in features to help users understand paycheck deductions, student tax credits, and even child tax benefits. Encourage teens to explore and use these resources to strengthen their understanding.
Tax Planning as a Long-Term Financial Strategy
Tax education is not just about understanding obligations—it’s also about teaching smart strategies. With a solid foundation, teens are more likely to:
- Plan for big savings goals like education or buying a car,
- Take advantage of tax-advantaged accounts like Roth IRAs (available to anyone with earned income),
- Avoid penalties from errors or missed filings.
As of 2025, the Roth IRA contribution limit has increased to $7,000 per year, allowing working teens to save more for retirement early on. If your teen earns money through W-2 or even self-employment, this is a great time to introduce the concept of tax-optimized investing.
Make Taxes a Conversation, Not a Mystery
Teaching teens about taxes is an investment in their lifelong financial well-being. A strong understanding of tax basics not only helps them avoid costly mistakes but also empowers them to take control of their earnings and future planning.
If you’re looking to dive deeper into U.S. tax concepts—such as the seven income tax brackets, standard deductions, and available credits—visit the official IRS website. In 2025, the site now features interactive guides specifically designed for young earners and first-time taxpayers.
Mae Sisco 
Randall Brown