How Much Do Minors Pay in Income Taxes?

Minors, like adults, may have income tax obligations depending on how much they earn and the type of income they receive. The Internal Revenue Service (IRS) does not exempt individuals from filing requirements based solely on age. Understanding these tax rules is important for both minors and their parents, as specific provisions apply to dependent children.

Taxable Income for Minors

Income for minors generally falls into two categories: earned income and unearned income. Earned income is money received from active participation in work or services. Examples include wages from a part-time job, salaries, tips, or income from self-employment activities like babysitting or lawn care. This type of income is typically reported on a Form W-2 for wages or a Schedule C for self-employment.

Unearned income is passive income not generated from active work. This can include interest earned from savings accounts, dividends from stocks, capital gains from investments, trust distributions, or rental income. Different rules and thresholds apply to each, influencing a minor’s overall tax liability.

Standard Deduction and Filing Requirements

A minor who can be claimed as a dependent on another taxpayer’s return has specific rules for calculating their standard deduction. For the 2024 tax year, a dependent’s standard deduction is limited to the greater of $1,300 or their earned income plus $450, up to a maximum of $14,600. This limitation ensures that dependents do not receive the full standard deduction available to independent filers.

Whether a minor needs to file a tax return depends on their gross income, which includes both earned and unearned income. For the 2024 tax year, a minor must file if their earned income exceeds their specific standard deduction amount. If they have only unearned income, a filing requirement is required if that income is more than $1,300. For minors with self-employment income, a return is required if their net earnings from self-employment are $400 or more, due to Social Security and Medicare tax obligations.

The Kiddie Tax Rules

The “Kiddie Tax” in Internal Revenue Code Section 1 was established to prevent parents from avoiding higher tax rates by shifting investment income to their children. For the 2024 tax year, the Kiddie Tax applies if a child’s unearned income exceeds $2,600.

The Kiddie Tax applies to children under 18 years old at the end of the tax year. It can also apply to 18-year-olds if their earned income does not exceed half of their support, or to full-time students aged 19 to 23 if their earned income is also less than or equal to half of their support. When the unearned income is above the threshold, the portion exceeding $2,600 for 2024 is taxed at the parent’s marginal tax rate. The first $1,300 of a child’s unearned income is tax-free, and the next $1,300 is taxed at the child’s rate.

Calculating a Minor’s Tax Liability

Determining a minor’s total tax liability involves several components. The minor’s earned income is taxed at their own individual tax rates after applying their limited standard deduction. For instance, if a minor has only earned income, their taxable income is their gross earned income minus their standard deduction, and the resulting amount is taxed using standard individual income tax brackets.

When unearned income is present and exceeds the Kiddie Tax thresholds, the calculation becomes more complex. The first portion of unearned income is offset by the standard deduction or taxed at the child’s rate. Any unearned income above the specified threshold for the Kiddie Tax (e.g., $2,600 for 2024) is then subject to the parent’s marginal tax rate.

Reporting Minor’s Income

When a minor’s income requires filing, specific IRS forms are used to report their earnings. The primary tax form for individuals, including minors, is Form 1040 (U.S. Individual Income Tax Return). Depending on the types of income, additional schedules may be necessary. For example, Schedule B is used to report interest and ordinary dividends, while Schedule D is used for capital gains and losses.

For children subject to the Kiddie Tax, Form 8615, “Tax for Certain Children Who Have Unearned Income,” is used. If a child’s gross income consists only of interest and dividends and is below 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.” However, earned income must always be reported on the child’s own tax return if a filing requirement exists.