Does My Child Need to File a Tax Return?

It is a common misconception that children are exempt from income tax obligations. The Internal Revenue Service (IRS) has specific rules that determine whether a child must file a federal income tax return. These requirements are based on the amount and type of income the child has received during the tax year. A child’s age and whether they can be claimed as a dependent on a parent’s tax return are also contributing factors.

Filing Requirements for a Dependent Child

Whether a dependent child must file a tax return depends on income thresholds that vary by the type of income. For the 2024 tax year, the rules are segmented into categories for earned, unearned, and combined income sources.

Earned Income Only

Earned income includes all money received for services performed, such as wages from a part-time job, salaries, and tips. For tax year 2024, a dependent child with only earned income must file a tax return if that income exceeds $14,600. This figure is tied to the standard deduction amount for single filers for the year.

Unearned Income Only

Unearned income is money not received for services, such as interest from a savings account, dividends from investments, or capital gains. The filing threshold for unearned income is significantly lower. For tax year 2024, a dependent child must file a return if their unearned income is more than $1,300.

Both Earned and Unearned Income

When a child has both earned and unearned income, the calculation becomes more complex. A child must file a tax return if their gross income is more than the greater of two amounts: $1,300, or their total earned income (up to $14,150) plus $450. For example, if a child has $1,000 in wages and $500 in interest income, their gross income is $1,500, which is greater than their earned income plus $450 ($1,450), so they are required to file a return.

Self-Employment Income

A separate and much lower threshold applies to net earnings from self-employment. If a child has net earnings of $400 or more from work where they are their own boss, such as from babysitting or lawn mowing, they must file a tax return. This rule is to ensure the payment of self-employment taxes, which cover Social Security and Medicare contributions.

Understanding the Kiddie Tax

The “Kiddie Tax” affects how a child’s unearned income is taxed, rather than whether they must file a return. Its purpose is to prevent parents from avoiding taxes by shifting investment assets into their children’s names. These rules tax a child’s unearned income above a certain threshold at the parents’ higher marginal tax rate.

For tax year 2024, the Kiddie Tax applies to a child’s unearned income that exceeds $2,600. The first $1,300 of unearned income is not taxed, and the next $1,300 is taxed at the child’s own tax rate. Any unearned income beyond that $2,600 total is subject to the parents’ tax rates. These rules apply to children under age 18 at the end of the tax year, or to full-time students under age 24 who do not provide more than half of their own support.

If a child is subject to the Kiddie Tax and files their own return, they must use Form 8615, Tax for Certain Children Who Have Unearned Income. This form is used to calculate the tax on the unearned income at the parents’ rate. Completing this form requires information from the parents’ tax return, such as their taxable income and filing status, to ensure the correct tax liability is calculated for the child.

Filing to Receive a Tax Refund

In many cases, a child may not meet the income requirements that mandate filing a tax return, but it may still be beneficial for them to file one. The most common reason is to receive a refund of federal income tax that was withheld from their paychecks. An employer is often required to withhold taxes from wages, even if the employee ultimately earns too little to owe any tax for the year.

Consider a teenager who works a summer job and earns $3,500, which is well below the 2024 earned income filing threshold of $14,600. If their employer withheld $150 in federal income tax from their pay, as shown on their Form W-2, that money remains with the government unless a return is filed. The only way for the child to get that $150 back is to file a Form 1040 and claim a refund.

Methods for Reporting Your Child’s Income

If a child must file a return or would benefit from doing so, there are two primary methods for reporting their income to the IRS.

The Child Files Their Own Return

The standard method is for the child to file their own tax return using Form 1040. This is the required method if the child has any earned income or self-employment income.

The Parent Reports the Child’s Income

In limited situations, a parent can elect to report a child’s income on their own tax return using Form 8814, Parents’ Election To Report Child’s Interest and Dividends. For tax year 2024, this option is only available if all of the following conditions are met:

• The child was under age 19 (or 24 if a full-time student).
• The child’s gross income was less than $13,000.
• The child’s income consisted solely of interest and dividends.
• The child did not make estimated tax payments or have federal income tax withheld.

While this can simplify the process by avoiding a separate return for the child, it may result in a higher overall tax liability for the family. This is because the child’s income is added to the parent’s, potentially pushing the parent into a higher tax bracket.