How to Prove Earned Income for a Child

Proving a child’s earned income is important for families, especially when navigating tax obligations or understanding their financial standing. Establishing a clear record of earnings ensures compliance with tax regulations and provides a foundation for future financial decisions.

Defining Earned Income for Children

Earned income refers to money received from working, whether for an employer or through self-employment. For a child, this includes wages, salaries, tips, and professional fees. Examples of earned income for minors are earnings from a part-time job, babysitting services, lawn mowing, or delivering newspapers. This type of income is distinct from unearned income, which comes from sources not directly related to work.

Unearned income typically includes investment-related earnings such as taxable interest, dividends, and capital gains from investments. Other forms of unearned income include trust distributions, Social Security benefits, and annuities. The distinction between earned and unearned income is significant because different tax rules and filing requirements apply to each category. The “kiddie tax,” for instance, applies to a child’s unearned income above certain thresholds, taxing it at the parent’s marginal tax rate, but it does not apply to earned income.

Documenting Earned Income

Proving a child’s earned income requires specific documentation tailored to the source of their earnings. For children employed by a business, a Form W-2, Wage and Tax Statement, is the primary document substantiating their wages. This form reports their total taxable wages, tips, and other compensation for the calendar year.

Pay stubs can serve as supplementary documentation, particularly for current income or if a W-2 is not yet available, offering a detailed breakdown of earnings and deductions for specific pay periods. If a child works as an independent contractor or is self-employed, their income may be reported on Form 1099-NEC, Nonemployee Compensation. This form is issued if payments for services rendered exceed $600 from a single payer in a calendar year.

For self-employed children, such as those earning income from babysitting or lawn care, meticulous record-keeping is necessary to prove income and expenses. This includes maintaining invoices for services rendered, receipts for business-related expenses, and clear bank statements showing deposits of earnings. Maintaining these records for at least three to seven years is advisable to support any information reported on a tax return.

Utilizing Earned Income Information for Tax Filings

Once a child’s earned income is accurately documented, this information becomes essential for tax filing purposes. A dependent child must generally file a tax return if their earned income exceeds the standard deduction amount for the year. For the 2024 tax year, this threshold is $14,600. Even if income is below this amount, filing a return may be beneficial if federal income tax was withheld from their paychecks, as it could result in a refund.

If a child has self-employment income, they typically need to file a tax return if their net earnings from self-employment are $400 or more. This threshold applies regardless of their total earned income and requires the reporting of income and expenses on Schedule C (Form 1040), Profit or Loss From Business.

The information from Form W-2 or Schedule C then transfers to Form 1040, where the child’s total income is reported. Understanding these filing requirements and having proper documentation ensures that a child’s tax obligations are met accurately. This process also allows for the correct calculation of any standard deduction they may be eligible for, which can offset their taxable income.