Can My Child File Taxes if I Claim Them as a Dependent?

Understanding whether your child can file taxes while being claimed as a dependent is crucial for efficient tax planning. This situation often arises in families where children have their own income, such as from part-time jobs or investments.

Filing Thresholds for Dependents

For the 2024 tax year, the IRS has set income thresholds that determine when a dependent must file. These thresholds depend on the type of income—earned, unearned, or a combination of both. Dependents with only earned income, such as wages, must file if their income exceeds $13,850, which matches the standard deduction for single filers. For unearned income, including interest, dividends, and capital gains, the filing threshold is $1,250. If a dependent has both earned and unearned income, filing is required when the total income exceeds the larger of $1,250 or the sum of $400 plus their earned income, up to the standard deduction limit.

Income Sources That May Require a Separate Return

Certain types of income require separate reporting due to specific tax rules. Self-employment income is one example. If a dependent earns more than $400 from freelance work or a small business, they must file a return to report self-employment tax, using Schedule SE.

Scholarships or grants exceeding qualified education expenses, such as tuition and fees, may also require filing. While scholarships are generally tax-free when used for education-related costs, amounts spent on room and board or other non-qualified expenses are taxable. Careful calculations and documentation are needed to determine any taxable portion.

Income from rental properties or royalties must also be reported. If a dependent earns income from property rentals or intellectual property, the IRS requires this to be filed, regardless of the amount, due to specific tax treatments like deductions for depreciation or depletion.

Dependents’ Deductions and Credits

When a dependent files a tax return, they can claim certain deductions and credits. The standard deduction for 2024 allows dependents to deduct up to $13,850 from their earned income, reducing taxable income.

Dependents may also qualify for tax credits that directly reduce taxes owed. For example, the American Opportunity Tax Credit (AOTC) provides up to $2,500 annually for qualified education expenses, with up to $1,000 refundable even if no tax is owed. Similarly, the Saver’s Credit offers up to $1,000 for dependents contributing to a retirement account, such as an IRA, promoting early saving.

Situations Where Filing Helps the Child

Filing a tax return can benefit a dependent, even when not required by income thresholds. One key benefit is the potential for a tax refund. If a child has taxes withheld from wages, filing is the only way to recover any overpaid federal or state taxes.

Additionally, dependents with earned income may qualify for the Earned Income Tax Credit (EITC), a refundable credit that can increase their refund. Filing also helps establish a tax history, which can be valuable when applying for student loans, credit, or scholarships requiring financial documentation.

Coordination With Your Own Return

When claiming a child as a dependent, it’s important to ensure their tax filing aligns with your return to prevent errors or conflicts that could trigger IRS scrutiny. A dependent cannot claim their own personal exemption, and parents must coordinate to avoid duplicate claims for benefits such as the Child Tax Credit or Additional Child Tax Credit.

Unearned income requires special attention. If a dependent’s unearned income exceeds $2,500, parents may use Form 8814 to report the income on their return. This approach can simplify filing but may increase the parent’s tax liability, as the income is taxed at the parent’s marginal rate under the “kiddie tax” rules. If the child’s unearned income is significant, filing a separate return may result in a lower overall tax burden for the family.

Parents should also coordinate education-related tax benefits. For instance, if a parent claims the American Opportunity Tax Credit or Lifetime Learning Credit, the child cannot claim these credits on their return. Similarly, 529 plan withdrawals used for qualified education expenses must be reported properly to avoid double-dipping on tax benefits. Careful coordination ensures these benefits are used effectively while complying with IRS regulations.