You’re preparing your return and have gone through all of your tax documents twice. However, still sitting on your dining room table are the documents with your kids’ names. What do you do? Let’s talk about these documents and then decide if your child must file a return
Note: When we say “child”, we are assuming that your kid is being claimed as your dependent and is under age 18 as of January 1st, 2008.
Only Earned Income
This is the simplest situation. If your child only has earned income reported on a W-2 and the total isn’t more than $5,350, then a return does not need to be filed. However, you’ll want to file a return for a refund if there was any federal withholding, see Form W-2, box 2. If the total of earned income is over $5,350 a return must be filed.
Earned income includes wages and salaries on Forms W-2. If the child is self-employed, the Schedule C net income is included as earnings. (See more below about self-employment income).
If the child received any 1099-INT, 1099-DIV, or 1099-B tax documents in addition to those W-2s, then unearned income was received and the rules in this section don’t apply.
Only Unearned Income
What if your child has no earned income (W-2 or self-employment) but does have unearned income (also known as investment income). The answer depends on how much unearned income there is for the tax year.
To find the child’s unearned income, look for Forms 1099-INT, 1099-DIV, and 1099-B with the child’s social security number.
Unearned income includes taxable interest, dividends, capital gains (including capital gain distributions) and distributions from trusts.
The child’s tax return only needs to be filed if the total unearned income is more than $850.
There is another option if your child is in this situation – the child’s parents may be able to elect to have the child’s income included on their tax return. If the parents make this election, the child does not have to file. The tax ramifications of this election will be discussed in a future blog.
A Mix of Earned income and Unearned Income
This is where is gets complicated. In short, if your child has any earned income reported on a W-2, then a return must be filed if they also had unearned income greater than $300. The only exceptions to this are if the combined income is less than $850 or the earned income is greater than $5,150.
Here’s the chart to use to figure out the numbers.
|
1 |
Earned income plus $300 | |
|
2 |
Minimum amount |
$850 |
|
3 |
Compare lines 1 & 2. Enter larger amount | |
|
4 |
Maximum amount |
$5,350 |
|
5 |
Compare line 3 & 4. Enter the smaller amount |
|
|
6 |
Enter gross (total income) |
|
If line 6 is greater than line 5, the child must file a tax return.
Here are some examples:
1) Your child has wages (earned income) of $3,000, $200 of interest income, and therefore total income of $3,200.
|
1 |
Earned income plus $300 |
$3,300 |
|
2 |
Minimum amount |
$850 |
|
3 |
Compare lines 1 & 2. Enter larger amount |
$3,300 |
|
4 |
Maximum amount |
$5,350 |
|
5 |
Compare line 3 & 4. Enter the smaller amount |
$3,300 |
|
6 |
Enter gross income (total income) |
$3,200 |
Since Line 6 (gross income) is less than line 5, the child does not have to file a tax return.
|
1 |
Earned income plus $300 |
$3,300 |
|
2 |
Minimum amount |
$850 |
|
3 |
Compare lines 1 & 2. Enter larger amount |
$3,300 |
|
4 |
Maximum amount |
$5,350 |
|
5 |
Compare line 3 & 4. Enter the smaller amount |
$3,300 |
|
6 |
Enter gross (total income) |
$3,600 |
Since Line 6 (gross income) is more than line 5, the child does have to file a tax return!
Other reasons for a child to file a tax return
A child must file a return if they owe other taxes than regular income tax. Here’s a list of those types of taxes:
- Self-employment tax (had self-employment net earning of more than $400)
- Social Security and Medicare tax on tips not reported to employer
- Recapture of an education credit
For more information on filing a child’s tax return, see IRS Publication 929.
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