As a parent, you’re used to managing your child’s finances, but when they start earning their own income, whether it’s from a summer job, freelancing, or investments, you might wonder, “Does my child have to file a tax return?”
The IRS has specific rules for dependents and minors, and it’s crucial to understand when your child is required to file. Missing this can lead to penalties, and filing unnecessarily could waste time. Let’s break it all down to help you navigate this tricky terrain.
When Does a Child Need to File a Tax Return?
Your child may need to file a tax return if their income exceeds certain thresholds. The type of income (earned vs. unearned) determines the filing requirement.
1. Earned Income
Earned income includes wages from a job, babysitting, or freelancing.
- Threshold: If your child’s earned income exceeds $13,850 in 2024, they must file a tax return.
- Example: Your 16-year-old works part-time and earns $14,000. They’re required to file.
2. Unearned Income
Unearned income refers to money not earned from work, such as interest, dividends, or investment income.
- Threshold: If unearned income exceeds $1,250 in 2024, your child must file.
- Example: Your child earns $1,500 in interest from a savings account. They must file.
3. Combined Income
If your child has both earned and unearned income, they must file if their total income exceeds the greater of:
- $1,250, or
- Their earned income + $400.
- Example: Your child earns $13,000 from a job and $500 in dividends. The combined income is $13,500, which requires filing.
4. Self-Employment Income
If your child is self-employed, such as a freelance graphic designer or lawn care provider:
- Threshold: They must file if they earn $400 or more.
5. Other Situations That Require Filing
Your child must also file if they:
- Owe Social Security or Medicare taxes on tips.
- Earn wages from a family business (treated as self-employment).
- Receive advance premium tax credits for health insurance.
What If My Child Doesn’t Meet the Threshold?
If your child’s income is below the required thresholds, they typically don’t need to file. However, there are exceptions:
Reasons to File Anyway
- To Claim a Refund: If taxes were withheld from their paycheck, filing ensures they get their money back.
- For College Applications: Tax returns may be required for financial aid applications, like the FAFSA.
How to File a Tax Return for a Child
Step 1: Determine Filing Status
Children who file taxes typically use the Single filing status.
Step 2: Use the Correct Form
- Form 1040: Most children file their taxes using the standard Form 1040.
- Form 8615 (Kiddie Tax): If your child’s unearned income exceeds $2,500, it may be taxed at your tax rate.
Step 3: Collect Necessary Documents
Gather these documents:
- W-2s: For wages earned.
- 1099-INT or 1099-DIV: For interest or dividend income.
- Records of self-employment income or business expenses.
Step 4: Decide Who Files the Return
- Child Files Individually: The child files their own return if required.
- Parent Files for Child: Parents can report a child’s unearned income on their own tax return using Form 8814, but this may increase the parent’s tax liability.
Step 5: Submit the Return
Ensure the return is filed by April 15, 2024. Filing electronically speeds up processing and refunds.
FAQs About Children and Taxes
1. What is the Kiddie Tax?
The Kiddie Tax applies to a child’s unearned income over $2,500, which may be taxed at the parent’s tax rate to prevent families from shifting income for tax benefits.
2. Can My Child Claim the Standard Deduction?
Yes, children can claim the standard deduction. Earned income is equal to their income up to $13,850, or $1,250 for unearned income.
3. What Happens If My Child Doesn’t File?
Failing to file can result in IRS penalties, interest, and complications for future tax filings.
4. Can Parents File a Child’s Return?
Yes, parents can file for a child, especially for young dependents, or to claim unearned income on their own return.
Wrapping It Up
So, does my child have to file a tax return? It depends on their income type and amount. Whether they’re earning a paycheck, managing investments, or running a small business, understanding IRS rules ensures compliance and helps them avoid penalties.
Need help? Globe Tax can simplify the process, making sure your child’s tax return is accurate and hassle-free. Let us handle the details so you and your child can focus on what matters most.
FAQs
1. Does my child need to file taxes if they only babysit?
If their income exceeds $13,850 or they earn $400+ from self-employment, they must file.
2. Do savings account earnings count as income?
Yes, interest from savings accounts is considered unearned income and may require filing.
3. Can I include my child’s income on my tax return?
Parents can use Form 8814 to report unearned income under certain limits on their return.
4. What’s the filing deadline for a child’s tax return?
The deadline is typically April 15, the same as for all taxpayers.
5. Does filing taxes affect my child’s dependent status?
No, filing a tax return does not impact whether you can claim your child as a dependent.
