Do Kids Pay Taxes? An Overview of Filing Requirements

Tax obligations extend to individuals of all ages in the United States, including children, based on the income they earn. The Internal Revenue Service (IRS) sets specific rules for when a child’s income reaches a level that requires a tax return to be filed. These rules consider both the type and amount of income received. Understanding these guidelines helps ensure compliance with federal tax laws.

Understanding Taxable Income for Minors

Income for minors generally falls into two categories: earned income and unearned income. Differentiating between these types is important as they are treated differently for tax purposes, with distinct sources and filing implications.

Earned income includes wages, salaries, tips, and other compensation for personal services. This includes earnings from part-time jobs, like working at a local store, or self-employment activities such as babysitting, mowing lawns, or delivering newspapers. Net earnings from self-employment are considered earned income, as are certain disability benefits received before reaching minimum retirement age.

Unearned income comes from sources other than active work. This category includes investment-related income. Examples include interest from savings accounts, dividends from stocks, and capital gains from asset sales. Other forms include trust distributions, unemployment compensation, and taxable Social Security benefits.

When a Child Must File a Tax Return

A child’s obligation to file a federal income tax return depends on their gross income (earned and unearned). For 2024, a dependent child generally needs to file if their earned income exceeded $14,600. If a child only has unearned income, filing is required if that income was more than $1,300 for 2024.

When a child has both earned and unearned income, their filing requirement follows a specific rule. They must file if their gross income was greater than the larger of $1,300, or their earned income plus $450 (up to the $14,600 standard deduction for single filers in 2024). Even if a child’s income does not meet these thresholds, filing a return may be beneficial if federal income tax was withheld from their pay, as this could result in a refund.

The “Kiddie Tax” applies to a portion of a child’s unearned income, preventing parents from shifting income to children to avoid higher tax rates. For 2024, if a dependent child’s unearned income exceeds $2,600, the excess is taxed at the parent’s marginal tax rate. The first $1,300 of a child’s unearned income is generally tax-free, and the next $1,300 is taxed at the child’s own tax rate.

The Kiddie Tax rules apply to children under age 18 at year-end. They also apply to 18-year-olds and full-time students aged 19-23 whose earned income does not exceed half of their support. This tax typically applies if at least one parent is alive, the child must file a tax return, and does not file a joint return.

How a Child’s Income is Reported

Once a child’s income requires a tax return, two primary methods exist for reporting it to the IRS. The method chosen often depends on the types and amounts of income received.

One method is for the child to file their own federal income tax return (Form 1040). This is typically necessary if the child has earned income, such as wages, that meets filing thresholds. If a child has unearned income subject to Kiddie Tax rules, and the parent does not elect to include it on their own return, the child also files Form 8615 (“Tax for Certain Children Who Have Unearned Income”) with Form 1040.

Alternatively, if a child’s income consists solely of interest and dividends and meets specific conditions, parents may elect to report it on their own tax return. This election is made by attaching Form 8814 (“Parent’s Election To Report Child’s Interest and Dividends”) to the parent’s Form 1040. To qualify for this election for 2024, the child’s gross interest and dividend income must be less than $13,000, with no federal income tax withheld.

Various tax forms inform taxpayers and the IRS about a child’s income. For wages, a child typically receives Form W-2 from their employer. For unearned income, Form 1099-INT reports interest (usually if $10+ earned), and Form 1099-DIV reports dividends and capital gain distributions (also generally for $10+). These forms provide details for accurate tax reporting.