Do Children Pay Taxes? A Look at Filing Requirements

Children, like adults, can be subject to federal income tax under certain circumstances. A child’s tax liability depends on the type and amount of income they receive, whether from employment or investments.

Understanding these tax rules is important for parents and guardians to ensure compliance. While many children won’t earn enough to require filing, specific thresholds and income types can necessitate a tax return. Navigating these requirements involves distinguishing between different income categories and applying special tax provisions relevant to minors.

Taxable Income for Children

A child’s income is categorized into two main types: earned income and unearned income. This distinction is important because they are treated differently under tax law, affecting filing requirements and tax calculations. Earned income is compensation for services performed, such as wages, tips, salaries, commissions, bonuses, and net earnings from self-employment like babysitting or mowing lawns.

Unearned income is derived from sources other than active work, often stemming from investments or assets. Examples include taxable interest, dividends, and capital gains from asset sales. Other forms of unearned income include:
Rental income
Royalties
Pension and annuity income
Income from a trust
Taxable scholarship and fellowship grants not reported on Form W-2
Unemployment compensation

Special Rules for Unearned Income

Unearned income for children is subject to specific tax provisions called the “Kiddie Tax,” outlined in Internal Revenue Code Section 1. This tax prevents parents from lowering their tax burden by transferring income-generating investments to their children. It ensures a child’s investment income is taxed at a rate comparable to the parents’ marginal tax rate once it exceeds certain thresholds.

The Kiddie Tax applies to dependent children who meet specific criteria. For the 2024 tax year, it generally applies if the child was under age 18 at year-end, or was age 18 and their earned income was not more than half of their support. It also applies to full-time students aged 19 through 23 if their earned income did not exceed half of their support. Additionally, the child must:
Have more than a specified amount of unearned income.
Be required to file a tax return.
Not file a joint return with a spouse.
Have at least one parent alive at year-end.

For 2024, the first $1,300 of a child’s unearned income is generally tax-free due to the standard deduction for dependents. The next $1,300 is taxed at the child’s own rate. Any unearned income exceeding $2,600 for 2024 is taxed at the parents’ marginal income tax rate. This means the tax liability on that excess income is calculated as if it were the parents’ income, potentially resulting in a higher tax burden.

Determining Filing Obligations

A child’s obligation to file a federal income tax return depends on the amount and type of income received. For the 2024 tax year, specific income thresholds determine if a child needs to file, varying based on whether the income is earned, unearned, or a combination.

If a child only has earned income, they must file a tax return if their earned income exceeds the standard deduction for dependents. For 2024, this threshold is $14,600. Filing might be beneficial to claim a refund of any withheld taxes.

When a child has only unearned income, a lower filing threshold applies. For 2024, a child must file a return if their unearned income is more than $1,300. This includes income from investments such as interest, dividends, or capital gains.

If a child has both earned and unearned income, their filing requirement is determined by a combined threshold. They must file a tax return if their gross income exceeds the larger of $1,300, or their earned income plus $450. If a child’s self-employment income, including tips, is $400 or more, they must file a tax return to pay Social Security and Medicare taxes, regardless of their total earnings.

Preparing and Submitting a Child’s Tax Return

Once a child must file a tax return, the process involves selecting the correct forms and following submission procedures. Form 1040 is the primary form used. If the child’s unearned income is subject to the Kiddie Tax, additional forms are necessary.

For children whose unearned income exceeds the Kiddie Tax thresholds, Form 8615, “Tax for Certain Children Who Have Unearned Income,” must be completed. This form calculates the tax on the child’s unearned income at the parent’s marginal tax rate. Form 8615 requires the child’s name, Social Security Number, and the name, Social Security Number, and filing status of the parent whose tax rate will be used for calculation. This form is then attached to the child’s Form 1040.

The responsibility for signing the child’s tax return depends on their age and capability. If the child is unable to sign their own return, a parent, guardian, or other legally responsible person must sign it on their behalf. The signature should include the child’s name, followed by “By (your signature), parent for minor child” (or similar designation). Returns can be submitted electronically through e-filing services or mailed as a paper return. Paper filing instructions are available within the Form 1040 general instructions.