Do I Have to Include My Child’s Income on My Tax Return?
Understand when and how to report your child's income on your tax return, including key thresholds and filing requirements.
Understanding the tax implications of your child’s income is essential for accurate and compliant filing. As a parent, you may wonder if your child’s earnings should be reported on your tax return or separately. This decision can affect your overall tax liability and compliance with IRS regulations.
Earned vs Unearned Child Income
It’s important to distinguish between earned and unearned income, as they are treated differently under the tax code. Earned income includes wages, salaries, or compensation from part-time jobs or freelance work. For 2024, the standard deduction for a dependent with earned income is $13,850, allowing them to earn up to this amount without owing federal income tax.
Unearned income comes from sources like interest, dividends, and capital gains. The “kiddie tax” rules apply to unearned income over $2,300, taxing it at the parent’s marginal tax rate to prevent income shifting to lower brackets. If your child has both earned and unearned income, each must be evaluated separately to determine the correct tax treatment.
Dependent Filing Thresholds
Dependent filing thresholds determine whether your child needs to file a tax return. For 2024, if a dependent’s unearned income exceeds $1,250, they must file a return. Additionally, if their total earned income plus $400 exceeds $13,850, filing is required. These thresholds clarify when separate filings are necessary and help ensure compliance with IRS rules.
If a child has both earned and unearned income, consider the combined effect on their filing obligations. A separate return is required if the combined income surpasses the greater of $1,250 or earned income plus $400.
Reporting on a Parent Return
Parents can report a child’s unearned income on their tax return using Form 8814 if it does not exceed $11,000. This option simplifies filing but may increase taxable income, potentially leading to a higher tax bill, especially under the kiddie tax rules.
Weigh the convenience of reporting on a single return against possible tax implications. Also, consider how this choice might impact deductions or credits that could differ if the child’s income were reported separately.
Situations Requiring a Separate Return
Certain scenarios require a child to file a separate tax return. For instance, self-employment income over $400, such as from freelance work or a small business, necessitates a separate filing and may incur self-employment taxes.
Income from rental properties or partnerships also requires separate filing and involves specific forms like Schedule E for rental income or a K-1 for partnership distributions. These forms ensure accurate reporting and taxation, highlighting the complexities of managing diverse income streams.