Do Kids Have to Pay Taxes? Filing Requirements Explained

The necessity for a child to file a tax return and potentially pay taxes depends on the type and amount of income they receive during the tax year. Income earned by a minor, similar to an adult, may be subject to federal income tax laws. Understanding these distinctions is important for parents and guardians to ensure compliance with tax obligations.

Types of Income for Minors

Income for minors falls into two categories: earned income and unearned income. The classification of a child’s income is important because different tax rules and filing requirements apply to each type.

Earned income includes wages, salaries, tips, or fees for services performed. Examples include earnings from a part-time job, babysitting, mowing lawns, or self-employment activities. This income is reported on a Form W-2 from an employer or, for self-employment, Form 1099-NEC.

Unearned income is derived from sources other than wages or active work. This category encompasses interest from savings accounts or bonds, dividends from stocks, capital gains from the sale of investments, income from trusts, or rental income from property. These types of income are reported on 1099 forms, such as Form 1099-INT for interest or Form 1099-DIV for dividends.

When a Child Must File a Tax Return

A child must file a federal income tax return if their income exceeds thresholds, which vary based on income type. For the 2024 tax year, a dependent child must file a return if their earned income is more than $14,600. This threshold corresponds to the standard deduction amount for a single individual.

For unearned income, the filing requirement is lower. A dependent child must file a return if their unearned income exceeds $1,300 for the 2024 tax year. If a child has both earned and unearned income, they must file if their gross income (earned plus unearned) is more than the larger of $1,300, or their earned income plus $450.

A rule applies to self-employment income. If a child has net earnings from self-employment of $400 or more, they are required to file a tax return regardless of their total gross income. This is because self-employment income is subject to self-employment taxes, which cover Social Security and Medicare contributions. A child may also need to file even if their income is below these thresholds if federal income tax was withheld from their pay, or if they qualify for a refund.

How a Child’s Income is Taxed

A child’s earned income is taxed at their own individual tax rates, like an adult taxpayer. After accounting for their standard deduction, which for a dependent is the greater of $1,300 or their earned income plus $450 for 2024, any remaining earned income is subject to the standard federal income tax brackets. If a child’s earned income is below their standard deduction amount, they may owe no federal income tax on that income.

The taxation of a child’s unearned income follows rules designed to prevent parents from shifting investments to their children to take advantage of lower tax rates. For the 2024 tax year, the first $1,300 of a child’s unearned income is tax-free. The next $1,300 in unearned income is taxed at the child’s own tax rate. Any unearned income exceeding $2,600 is then taxed at the parents’ marginal tax rate. This applies to children under 18 at the end of the tax year, or 18-year-olds whose earned income does not exceed half of their support, or full-time students aged 19-23 whose earned income does not exceed half of their support.

Preparing and Submitting a Child’s Tax Return

The responsibility for preparing and signing a child’s tax return falls to the parent or legal guardian. If the child is unable to meet these responsibilities, the parent must file on their behalf. The primary form used for individual income tax returns is Form 1040.

For children with unearned income, parents may have the option to report this income on their own tax return by using Form 8814, Parents’ Election To Report Child’s Interest and Dividends. This election is available if the child’s only income is from interest and dividends, their gross income is less than $13,000 for 2024, and certain other conditions are met. If these conditions are not met, or if the parents choose not to make this election, the child must file their own tax return, which may involve Form 8615, Tax for Certain Children Who Have Unearned Income, to calculate the tax on unearned income at the parental rate.

To prepare the return, necessary documents include Form W-2 for earned income and 1099 forms for unearned income, such as Form 1099-INT for interest and Form 1099-DIV for dividends. Once prepared, the tax return can be submitted either electronically through tax software or by mailing a paper return to the Internal Revenue Service.