Staff Sergeant Johnny Horne, 30, from Winston-Salem, North Carolina, had pleaded guilty to charges of murder and conspiracy to commit murder at a court martial in Baghdad on Friday.
He was sentenced by a panel of seven senior soldiers after four hours of deliberation, the US military said.
As well as the prison term, Horne was reduced in rank to private, will forfeit all pay and has been dishonourably discharged from the military, the military said in a statement.
The convictions stem from an incident on 18 August when Horne's unit came across a suspicious vehicle late at night in the poor Sadr City district of Baghdad.
US soldiers opened fire on the rubbish truck they suspected of being used by guerrilla bombers.
Horne said he acted to put the wounded man out of his misery.
US forces clashed repeatedly in August with fighters loyal to Shia leader Muqtada al-Sadr. The sprawling Sadr City was a focal point of an uprising by al-Sadr followers.
The Los Angeles Times quoted local witnesses last month identifying the victim as 16-year-old Qasim Hasan, who was working with relatives collecting rubbish overnight.
The shooting took place in the
Sadr City area of Baghdad
It quoted US officials as saying six other Iraqis were also killed.
Earlier this week, US army Captain Rogelio Maynulet was ordered to face a full court martial for the murder in May of a man, wounded as troops pursued al-Sadr's fighters near Najaf.
His was the first case of murder to be investigated by the US military in Iraq, where many people accuse US troops of killing civilians through negligence or misunderstandings, notably while pursuing anti-American fighters or manning checkpoints.