If your kids discovered the joys of capitalism this year, raking in the dough from paper routes or pizza delivery, or receiving stocks or bonds instead of toys for their birthdays, they may also get to experience the joy of taxes this April. You may be surprised to find that, as dependents, your children have different rules for when to file taxes, and on what income, than you do.
When you pay your own taxes, you’re entitled to a personal exemption of $3,950 for tax year 2014. Therefore, the first $3,950 of your income isn’t taxed. When you claim your child as a dependent, you get to deduct their personal exemption on your taxes, which means your child doesn’t get to use it on theirs.