Is your teen ready to enter the workforce? This is a major step in a person's life as they prepare for adulthood. Help set them up for success by getting them ready financially for their first job.
Teach Them About Budgeting
Your child might be used to having an allowance, but it’s not as satisfying as getting their first steady paycheck. It will be exciting for them to be making larger amounts of money than they are used to, and they will probably be tempted to spend a lot, at least at first. Have a talk with them about budgeting and the importance of saving. Make sure they understand that if they spend their whole check immediately, they might be struggling by the end of the next pay period.
Teach Them About Taxes
Make sure your kid understands how they will be taxed by the government on their income. Will taxes be withheld, or will your child be responsible for paying in on their own?
"Pay attention to the way your teenager is classified by their employer," says H&R Block. (1) "Some smaller employers like the idea of hiring summer help as contractors, rather than as 'regular' W-2 employees. Contract workers can come with less paperwork and fewer tax complications for the employer. Teenagers might also find this arrangement attractive because they don’t see withholdings from their paychecks. When a teen is a W-2 employee, payroll taxes, and even federal taxes, can be withheld from the paycheck. The fact that federal taxes often come back as a refund rarely registers with teenagers. An employer will provide the contractor with a 1099 tax form showing the amount paid to them rather than the W-2 that is provided to an employee. Unfortunately, being a 1099 contractor can come with extra headaches at tax time."
If your child works as a 1099 contractor, help them understand that taxes will not be withheld, and they'll be responsible for making payments. It's usually a good idea to make quarterly estimated payments to avoid a large bill at tax time.
Help Them Figure Out Scheduling Limits and Expectations
Will your child work during the school year or only during the summer? They'll need to make sure their potential employer is aware of any scheduling needs before they commit to a job. If they have to work around school hours and/or extracurriculars, for example, it’s best to notify the employer up front. Otherwise, your child might encounter scheduling conflicts that can become problematic.
Have Transportation Figured Out
Be sure your child will be able to get to and from work. Make sure they have an idea of what their schedule will be like so they can not only work around their own school schedule, but also your schedule if they'll be counting on you for a ride. If they can walk, bike, or drive themselves, this is less of an issue, but transportation needs must be figured out in the beginning so they don't end up missing shifts due to not having a ride.
How Will They Get Their Meals?
Make sure your child is able to get their meals in, whether they eat before work, after work, or during a break. Help them figure out if they'll need to pack a meal to take or if they'll have access to nearby dining. This will likely be less of a concern if they happen to work at a restaurant, which may offer a free meal per shift, or at least an employee discount.
Help Them Set Up a Savings Account
While you have to be 18 years old to set up a regular personal savings account, Nevada State Bank offers a Young Savers account (2) for kids that you can tie to your own account to prevent overdrafts. There's no monthly maintenance fee, and this will give your child a place to keep their money before they turn 18 and are ready to start their own account(s).
Having a job is the first step toward financial independence, so it's important that you help your child get on the right track from the beginning. Give them as much guidance and support as possible as they enter the workforce and learn what it's like to become an employee.
1. https://www.hrblock.com/tax-center/lifestyle/tax-tips/5-teen-tax-tips/
2. Please refer to the Deposit Account Agreement, Account Disclosure, Deposit Rate Sheet, and Personal Accounts Schedule of Fees for complete details and disclosures.