What students and parents should know before that first paycheck 

A part-time job is a great way for high school and college students to build work experience, earn a paycheck, and learn responsibility. But if your student is receiving financial aid, or will be soon, you might be wondering: how does that extra income impact their financial aid eligibility and tax situation? 

Here’s what families should keep in mind to avoid surprises and plan smart. 

Financial Aid 

More Income Might Mean Less Aid 

When filling out the FAFSA (Free Application for Federal Student Aid), both the student’s and the parents’ income are factored into how much financial aid a student may qualify for. However, student income is treated differently and can have a greater impact on reducing aid. 

  • The FAFSA Income Protection Allowance for students is limited.
    Some of your and your parents’ total income is “protected” or excluded from the Student Aid Index calculation. For the 2025–26 FAFSA, dependent students can earn up to $11,510 in the base year (which is 2023 for this FAFSA cycle) without it affecting their aid eligibility. If they earn more than that amount, half of the excess is counted toward the Expected Family Contribution (EFC). This means that even a modest increase in earnings could reduce the amount of need-based aid your student receives.  Source: studentaid.gov 
  • Work-study jobs are treated differently.
    Federal Work-Study jobs are part of the student’s financial aid package and are considered need-based employment. Even though students are paid for their hours, this income is excluded from the FAFSA calculation as long as it’s reported correctly. If your student has access to work-study, it can be a smart way to earn money without hurting their future aid eligibility. 

Taxes 

Do Students Need to File? 

Many students and parents are surprised to learn that even small jobs can trigger a need to file a tax return. Understanding the rules now can help your student keep more of their hard-earned money and avoid unnecessary penalties. 

  • Even low-income students may receive a W-2 with withheld taxes.
    If your student works a regular job and receives a W-2, the employer may withhold federal income taxes from each paycheck—even if the student ultimately owes nothing. In these cases, filing a tax return is optional but often a good idea. By filing, they can typically claim a full refund of the taxes withheld. (You can read more about if your teen needs to pay taxes on their summer job here).  
  • Self-employment changes the rules.
    If your student earns money by babysitting, tutoring, freelance work, or other types of informal or gig income, they may be considered self-employed. For 2025, any student who earns $400 or more in net self-employment income is required to file a tax return and pay self-employment taxes, which cover Social Security and Medicare. This applies even if their total income is below the standard deduction of $15,000. Keeping records of earnings and expenses is key for correctly calculating what’s owed. Source: IRS Topic No. 554 

Tips for Families 

Building good habits and making decisions that support your student’s long-term goals will set your teen and your family up for success.  

  • Understand FAFSA income year timing.
    The FAFSA uses what’s called “prior-prior year” income, meaning the application for the 2025–26 school year is based on income from 2023. If your student plans to work during high school or early college, keep in mind how that year’s income might affect future aid. Timing can make a real difference. 
  • Keep earnings under the FAFSA threshold when possible.
    If your student is close to the income protection limit, consider adjusting hours or choosing jobs that won’t count against them, like work-study or certain scholarships. Even if they cross the threshold slightly, knowing the impact can help manage expectations when aid packages arrive. 
  • Help your student learn tax basics.
    Whether it’s understanding paycheck deductions, tracking tips, or learning how to file a return, these early financial lessons will serve your student for years to come. Sit down together with a pay stub, help them estimate taxes owed (if any), and walk them through filing a simple return. It’s a great opportunity to build financial literacy while avoiding costly mistakes. 

Smart Work, Smarter Planning 

A part-time job can be a powerful step toward independence and responsibility, but without the right planning, it can also create unexpected complications in financial aid or taxes. At Abacus!, we’re here to support families as they navigate these transitions. Whether it’s filing your student’s first tax return, understanding FAFSA implications, or planning ahead for next year, we’re ready to help you make smarter decisions with confidence.