What Are Taxes for Kids & How Do They Work?

Children, like adults, can earn or receive income. When that income reaches certain levels, it becomes subject to taxation. Understanding these rules is important for parents and guardians, as they often bear the responsibility for ensuring a child’s tax obligations are met.

Income Sources for Children

Children can generate income from various activities, which the tax system categorizes into two main types: earned income and unearned income. The distinction between these two categories is important because different tax rules apply to each.

Earned income refers to money received for services performed. This includes wages from a part-time job, such as working at a local store or restaurant. It also encompasses self-employment income, which a child might earn from babysitting, lawn mowing, or delivering newspapers. Tips and taxable scholarship or fellowship grants also fall under earned income.

Unearned income is money derived from investments or other sources where the child does not actively perform services. Examples include interest from a savings account or certificates of deposit. Dividends from stocks and capital gains from the sale of investments, such as mutual funds or real estate, are also considered unearned income. This category can also include trust income, rents, and royalties.

Taxation Rules for Children’s Income

A child’s standard deduction determines how much of their income is taxable. For the 2024 tax year, a dependent child’s standard deduction is the greater of $1,300 or their earned income plus $450. However, this amount cannot exceed the basic standard deduction for single filers, which was $14,600 for 2024.

Earned income for a child is generally taxed at the child’s own tax rates, similar to an adult, after accounting for their standard deduction. If a child earns wages from a job, these earnings are subject to the same progressive tax brackets that apply to other individual taxpayers. Any income above the standard deduction amount is taxed at the child’s marginal tax rate.

The taxation of unearned income is more complex due to the “Kiddie Tax” rules. This tax was established to prevent individuals from shifting investment income to children in lower tax brackets. For 2024, the first $1,300 of a child’s unearned income is tax-free. The next $1,300 is taxed at the child’s own rate. Any unearned income exceeding $2,600 is subject to the Kiddie Tax and is taxed at the parent’s marginal tax rate.

The Kiddie Tax applies to children under age 18 at the end of the tax year. It also applies to 18-year-olds or full-time students aged 19 through 23 if their earned income does not exceed half of their support for the year. The Kiddie Tax does not apply if neither parent was living at the end of the tax year, or if the child files a joint tax return.

Determining Who Files a Child’s Tax Return

Who files a tax return for a child with income depends on the amount and type of income received. For the 2024 tax year, a dependent child must file a tax return if:
Their earned income exceeds $14,600.
They have only unearned income that is more than $1,300.
They have both earned and unearned income, and their gross income exceeds the greater of $1,300 or their earned income plus $450.
Their net earnings from self-employment are $400 or more.

Parents may include their child’s income on their own tax return using Form 8814, the parental election to report a child’s interest and dividends. To qualify, the child must be under age 19 (or under age 24 if a full-time student) at the end of the tax year. The child’s only income must be from interest and dividends, and their gross income from these sources must be less than $13,000 for 2024. The child also cannot file a joint return. This simplifies filing but may result in a higher tax liability for parents.

If a child’s income does not meet parental election requirements, or if they have earned income, the child must file their own tax return. For example, a child earning wages from a job files their own return to potentially claim a refund of any withheld taxes. If the Kiddie Tax applies, the child’s own return, often with Form 8615, calculates and reports the tax.

Required Information and Forms for Filing

Before preparing a child’s tax return, gather specific financial documents and information. The child’s Social Security Number (SSN) is essential for identification. Income statements are crucial for accurately reporting earnings.

For earned income, a Form W-2, Wage and Tax Statement, details wages, tips, and any withheld taxes. For unearned income, various forms are required depending on the source, such as Form 1099-INT for interest, Form 1099-DIV for dividends, and Form 1099-B for capital gains or losses. These documents are typically mailed by financial institutions by early February.

Key tax forms for filing include Form 1040, U.S. Individual Income Tax Return, if the child files their own return. If the Kiddie Tax applies, Form 8615, Tax for Certain Children Who Have Unearned Income, must be completed and attached to the child’s Form 1040; this form calculates tax at the parent’s rate. If a parent elects to include their child’s interest and dividends on their own return, Form 8814, Parents’ Election To Report Child’s Interest and Dividends, is used and attached to the parent’s Form 1040. These forms and their instructions can be downloaded from the IRS website or accessed through tax preparation software.

Submitting a Child’s Tax Return

After completing tax forms, submit the return. Two primary methods are electronic filing (e-filing) or mailing a paper return. E-filing through tax preparation software or a tax professional is often the most convenient, providing faster processing and confirmation of receipt.

If mailing a paper return, send it to the correct IRS address, which varies by state and whether a payment is enclosed. The mailing address can be found in the instructions for Form 1040 or on the IRS website. When a tax payment is due, payments can be made directly from a bank account through IRS Direct Pay, by debit or credit card, or by mailing a check or money order with Form 1040-V.

After submission, taxpayers can track their refund status through the IRS “Where’s My Refund?” tool. Retain copies of all submitted forms and supporting documents for personal records.