Do I Have to File a Tax Return for My Child’s W2?

Many parents find themselves wondering about tax obligations when their child begins earning income, especially upon receiving a W-2 form. A W-2, or Wage and Tax Statement, reports the wages paid to an employee and the taxes withheld from their paycheck throughout the year. While a child’s employment might seem straightforward, the rules determining if they need to file a tax return and how their income affects the family’s overall tax situation involve specific considerations.

Determining if Your Child Needs to File

The Internal Revenue Service (IRS) sets specific filing requirements for dependents, which include most children. Whether a child needs to file a tax return depends on the type and amount of income they receive. Income is generally categorized as either earned income, such as wages from a job reported on a W-2, or unearned income, which includes interest, dividends, and capital gains from investments.

For the 2024 tax year, a dependent child must file a tax return if their unearned income exceeds $1,300. If their income is solely from earned sources, such as a W-2 job, they are required to file if their earned income is more than $14,600. When a child has both earned and unearned income, a filing requirement exists if their gross income (the total of earned and unearned income) is greater than the larger of $1,300 or their earned income plus $450.

A child’s standard deduction plays a role in determining if they meet these filing thresholds. For a dependent, the standard deduction is limited to the greater of $1,300 or their earned income plus $450, with a maximum of $14,600 for the 2024 tax year. Even if a child’s income does not meet these mandatory filing thresholds, filing a tax return is often advisable if federal income tax was withheld from their W-2 wages. This allows the child to receive a refund of any overpaid taxes.

Understanding the “Kiddie Tax”

The “kiddie tax” is a provision designed to prevent individuals from shifting investment income to their children, who might be in a lower tax bracket, to reduce the overall tax burden. This tax applies primarily to a child’s unearned income, such as interest, dividends, and capital gains. It aims to ensure that certain unearned income of a child is taxed at the parent’s marginal tax rate, rather than the child’s typically lower rate.

For the 2024 tax year, the first $1,300 of a child’s unearned income is generally tax-free. The next $1,300 of unearned income is taxed at the child’s own tax rate. However, any unearned income exceeding $2,600 is subject to the kiddie tax and is taxed at the parent’s marginal tax rate.

The kiddie tax rules apply to children who are:
Under age 18 at the end of the tax year.
Age 18, but whose earned income is not more than half of their support.
Full-time students aged 19 to 23, whose earned income is not more than half of their support.

Common situations where the kiddie tax might apply include a child receiving significant investment income from an inheritance, gifts, or a trust.

Filing Your Child’s Tax Return

Once it is determined that a child needs to file a tax return, the process involves gathering the necessary documents and completing the appropriate forms. The primary document for reporting wages is Form W-2, which is provided by the employer.

If the child also received unearned income, they may have received:
Form 1099-INT for interest.
Form 1099-DIV for dividends.
Form 1099-B for proceeds from broker and barter exchange transactions.

A child’s tax return is typically filed using Form 1040, the U.S. Individual Income Tax Return. If the child’s unearned income exceeds the kiddie tax thresholds, Form 8615, “Tax for Certain Children Who Have Unearned Income,” must be filed with the child’s return to calculate the tax due at the parent’s rate. Alternatively, if specific conditions are met, such as the child’s only income being interest and dividends under a certain amount (e.g., less than $13,000 for 2024), parents may elect to report the child’s income on their own return using Form 8814, “Parents’ Election To Report Child’s Interest and Dividends.”

Tax returns can be filed electronically using tax software or through a tax professional, or by mailing a paper form. For minor children who cannot sign their own return, a parent or guardian must sign on their behalf, indicating their relationship to the child. If taxes were withheld from the child’s W-2 wages and the amount withheld exceeds their tax liability, they will be due a refund.

Impact on Your Own Tax Return

A child’s income and their tax filing situation can indirectly affect the parent’s tax return, particularly concerning eligibility for certain tax benefits. Claiming a child as a dependent on your tax return can allow you to claim various tax credits, such as the Child Tax Credit. For the 2024 tax year, the Child Tax Credit can provide up to $2,000 per qualifying child age 16 or younger.

If a child does not qualify for the Child Tax Credit, perhaps due to age, they may still qualify for the Credit for Other Dependents, which can provide up to $500. A child’s filing of their own tax return generally does not prevent a parent from claiming them as a dependent, provided the child still meets the qualifying child or qualifying relative tests, including age, residency, and support requirements. The crucial factor for parents claiming these credits is usually that they provide more than half of the child’s support and the child’s gross income does not exceed certain thresholds for a qualifying relative.

While a child’s earned income reported on their own return typically does not impact the parent’s adjusted gross income (AGI), their unearned income, if elected to be reported on the parent’s return via Form 8814, would be added to the parent’s income. This addition could potentially increase the parent’s AGI, which might affect AGI-sensitive deductions or credits on the parent’s return.