What to Do If Your Dependent Has a W-2

When a dependent, particularly a child, begins earning income and receives a W-2, it introduces unique considerations for tax filing. While a W-2 form typically signifies earned income from employment, the tax implications for a dependent differ from those of an independent taxpayer. Understanding these specific rules is important for both the dependent and the individual claiming them. This situation requires careful attention to income thresholds and filing requirements to ensure compliance and optimize tax outcomes.

Dependent Tax Filing Requirements

A dependent is generally required to file their own tax return if their income exceeds certain thresholds. For the 2024 tax year, a dependent must file if their earned income, such as wages reported on a W-2, is more than $14,600. This earned income includes salaries, wages, and other amounts received for work performed.

The standard deduction for a dependent is limited and calculated differently than for independent taxpayers. For 2024, a dependent’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 a single filer, which is $14,600 for 2024. If a dependent’s gross income, which is the total of their earned and unearned income, exceeds their limited standard deduction, they may have a filing requirement.

If a dependent has unearned income, such as from investments or trusts, different thresholds apply. For 2024, a dependent must file if their unearned income exceeds $1,300. If a dependent has both earned and unearned income, they must file if their gross income exceeds the larger of $1,300 or their earned income plus $450.

How Dependent Income Affects Your Tax Return

A dependent’s W-2 income generally does not get directly added to the parent’s taxable income. Instead, if the dependent meets certain income thresholds, they will file their own tax return. Despite earning income, a child can often still be claimed as a dependent by a parent, provided they meet the qualifying child or qualifying relative tests.

For a qualifying child, there is no income limitation on their earned income for the parent to claim them as a dependent, as long as the child does not provide more than half of their own support. The qualifying child must also meet age, relationship, residency, and joint return tests.

A dependent’s income can influence certain credits or benefits a parent might claim. For instance, the Child Tax Credit, which can be up to $2,000 per qualifying child for 2024, has income phase-out rules based on the parent’s modified adjusted gross income. Claiming the dependent allows the parent to be eligible for such credits.

The “kiddie tax” is a rule designed to prevent high-income parents from shifting unearned income to their children to avoid higher tax rates. For 2024, the kiddie tax applies to unearned income exceeding $2,600. W-2 income is considered earned income and is not subject to the kiddie tax.

Reporting Dependent Income and Withholding

If a dependent meets the income thresholds, they are responsible for filing their own tax return. They will use their W-2 form to report their wages and any federal income tax withheld. The W-2 form provides important details, with Box 1 showing the total taxable wages, tips, and other compensation for federal income tax purposes. Box 2 indicates the total amount of federal income tax withheld from their paychecks, representing the amount of federal taxes paid throughout the year.

The amount in Box 2, federal income tax withheld, directly affects whether the dependent will receive a refund or owe additional tax. If too much tax was withheld from their pay, they will be due a refund, while insufficient withholding could result in tax owed.

A dependent can adjust their future withholding by submitting a new Form W-4 to their employer. This form allows them to specify allowances or an additional amount to be withheld, helping to ensure that the proper amount of tax is taken out of their pay throughout the year. If a dependent does not meet the filing requirements but had federal income tax withheld from their wages, they should still file a tax return. Filing in this scenario allows them to claim a refund of the tax that was withheld.