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Filing Taxes for Kids: Does My Child Have to File a Tax Return?

By Kira Botkin

business kid taxesIf 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 $3,900 for tax year 2013. Therefore, the first $3,900 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.

You may be tempted to skip claiming the exemption for your dependents in hopes that they will then receive the personal exemption themselves. On the contrary, whether you claim them or not, a person who qualifies as a dependent will not receive the personal exemption. As a result, if you choose not claim your dependent, no one will receive it.

Luckily, while dependents don’t get to take their own exemption, they do get a very nice standard deduction. If your child had a job that withheld taxes, it’s usually worth the time to file their taxes because he or she is likely to get most (or all) of the withheld money back.

Here are the key points you need to know when helping your child file their taxes.

Tax Filing Guidelines for Dependents

You can still claim your child as a dependent even after they reach 18, as long as they meet other rules for dependency. Because of this, the rules below apply to anyone who is claimed as someone else’s dependent, is under age 65, and is not blind. Keep in mind that there’s no lower limit on age, so if your newborn was gifted dividend-paying stocks or mutual funds, you might have to start doing this sooner than you think.

The first step in the process of helping your children file their taxes is figuring out what they’re eligible for. To do this, you need any W-2 tax forms (or other paperwork they should have received in January) that detail their taxable income.

Once you have this paperwork in hand, consider the following:

1. Earned vs. Unearned Income

The IRS defines income using two categories:

  • Earned Income. This refers to wages, tips, salary, professional fees, or commission earned by doing actual work.
  • Unearned Income. Any other income that wasn’t directly worked for – such as dividends, interest, or capital gains (such as from selling stock) – is considered unearned income. If the child has a trust fund, distributions from that are considered unearned income – unless the child has a disability trust, in which case distributions are considered earned income.

Knowing where your child’s earnings fall is critical to determining whether they are required to file.

2. Income Guidelines

Now that you know how your child’s income is defined by the IRS, you can figure out their legal obligations. As of tax year 2013, your child must file a tax return if any of these situations apply:

  • His or her earned income is more than $6,000
  • His or her unearned income is more than $1,000
  • His or her earned income plus unearned income is more than the greater of: $1,000, or earned income up to $5,750 plus $350

So,  if he or she had up to $5,750 of earned income and $200 of unearned income, it is not necessary to file a tax return. Another less obvious example would be if he or she had $300 of earned income and $500 of unearned income. It doesn’t seem like much, but it would still be necessary to file a tax return, because $300 + $500 + $350 = $1,150, which is larger than $1,000.

The idea here is that if your child earned a decent amount of money, the bar for being taxed is quite a bit higher than if all they did was cash dividend checks.

3. Is It Worth It?

The fact that your children don’t have to file taxes doesn’t mean it wouldn’t be beneficial for them to do so. If they have jobs that withhold federal taxes and they get a W-2 at the end of the year, chances are that they’ll get at least some of that money back.

If it still seems like too much of a hassle, think about this: If you don’t file taxes, you don’t get a tax refund. They could also qualify for education tax deductions and credits if they are putting themselves through college or otherwise taking classes.

4. Special Circumstances

There are a few specific circumstances in which your child must file taxes even if they don’t have a lot of income. These are the ones that they’re most likely to run into:

  • They owe any Social Security or Medicare tax (such as if they are reporting tip income that they received in cash)
  • They received any advance Earned Income Credit
  • They had $108.28 or more of wages from a church or other religious organization that doesn’t withhold Social Security or Medicare
  • They had $400 or more in profit from self-employment

If you’ve crunched the numbers and determined that it would be in your child’s best interest to file, the next step is to figure out how much they can take for a standard deduction.

taxes kids

Standard Deduction for Dependents

While dependents don’t get to take their personal exemption (since their parent or provider takes it), they do get to take a standard or itemized deduction. The standard deduction a dependent can take is the larger of:

  • $950
  • The individual’s earned income for the year plus $350 (but not more than the regular standard deduction amount, $6,100 for 2013)

This big deduction means that most children won’t have to pay taxes. In other words, if your child had federal taxes withheld and earned less than the regular standard deduction amount, they’ll get it all back. Children are also able to itemize their deductions for charitable donations and other items using Schedule A just like adults, but for most, it’s easier and smarter to use the standard deduction.

Who Can File the Return?

Interestingly, there are no official age guidelines defining who can sign and file a tax return. If your children are able to understand the instructions and fill out the return, then by all means, have them do so. Since they have to use the same 1040 IRS tax form (or the 1040A or 1040EZ, if you prefer) that you would use for yourself, it will be easy for you to assist them. Children can also itemize their deductions using Schedule A. This can be an excellent opportunity to teach your kids about money management and the process of filing taxes.

If they’re old enough, children can be responsible for filing the return themselves. Just remember, they will be responsible for any penalties that might occur. This legal liability could become a problem if the IRS finds problems with the return. They can refuse to divulge information or discuss any problems with you if your name is not signed, or at least noted somewhere on the form.

Fortunately, if a child is too young to handle this kind of responsibility, the parent or guardian is expected to complete the form for them. If your child isn’t old enough to sign their own return, you should complete it, sign their name for them, and add “By (your name), parent (or guardian) for minor child.”

Issues and Audits

Would the IRS really audit a child? Absolutely. Audits are just as blind to age as the filing process itself.

Don’t worry that your newborn will get hauled into court, though. If you signed the return for them, a parent or guardian is allowed to deal with the IRS if any issues come up, or if the child’s tax return is audited.

As noted above, if your child signs the return by him- or herself, it can get a little sticky. The parent can provide information to the IRS, but can’t do anything else with the return – that is, unless, your child wrote you in as a third-party designee who has permission to discuss the return with the IRS. This designation doesn’t allow the parent to receive the child’s refund or agree to any further tax liability. It is a safe way for parents to remain involved while still respecting the child’s freedom to file on his or her own.

That said, if you receive a notice from the IRS about your child’s tax return, you should immediately contact the IRS to disclose that the return is that of a minor child. The IRS will let you know how to proceed.

Filing Your Child’s Unearned Income on Your Return

If your child received $10,000 or less in interest and dividends during the year, you might be able to include his or her income on your own tax return instead of filing one separately. This can be a real time-saver for families in which the children own stocks or bonds that generate income. However, if you make this election, you may end up owing more tax on your child’s income. This is because you’ll lose the preferential tax treatment of capital gains distributions and qualified distributions if you report your child’s investment income on your return.

Keep in mind:

  • This only applies if the child only has unearned income. Earned income cannot be filed on your return.
  • The child has to be 19 or younger (or 24 or younger if he or she a full-time student).
  • If the unearned income is $2,000 or more, you must file an additional form (Form 8615), and since children have a lower tax rate on some items, you might end up paying more in taxes.
  • If their unearned income is between $1,000 and $12,000, you’re almost always financially better off filing a separate tax return for your child.

If you find that your child’s unearned income is more than $2,000, some of it will be taxed at your marginal tax rate whether or not you put their income on your tax return. This is definitely a situation where you’ll want to consult an accountant, especially if your child will be receiving unearned income for a few years in a row (such as if they own some dividend-bearing stock), so that you can do it on your own next year. For more details, check out Publication 929, Tax Rules for Children and Dependents.

Final Word

Filing taxes can be an important financial milestone for your child. If they are old enough to understand, involve them in the process, and start them off on the right foot toward becoming a responsible, tax-paying citizen. They’ll enjoy the refund check now, and they’ll later appreciate the early introduction to this complex process.

Kira Botkin
Kira is a longtime blogger and serial entrepreneur who enjoys gardening, garage sales, and finding stray animals. She lives in Columbus, Ohio, where football is a distinct season, and by day runs a research study for people with multiple sclerosis. She hopes that the MoneyCrashers team can help you achieve your goals and live a great life.

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  • Michelle

    Hi Kira,
    What about if my son (5 years old) is receiving Social Security death/survivor benefits because his father just passed away? Do we need to pay taxes on this amount? From my research on-line on the IRS and Social Security websites it doesn’t appear that this will be taxed, but I stil want to be sure. He does not have any other income. Thanks very much! Michelle

    • Kira Botkin

      No, if that is his only income, you do not need to file.

      • Bluesurf

        Help
        My daughter who is 15 does not have her social security number as we are still waiting for our visa numbers from the INS, she has just completed her referee course and has the oppertunity to referee for several local clubs. The problem she is running into is that the clubs need a tax id number from her for their own paper work. Do you have a suggestions under which catagory she can obtain a tax number.

        • Kira Botkin

          I’d have her get an EIN, since she’ll probably get a 1099 anyway. But I would call the IRS to see if they have another solution first.

  • LWSargent

    I have a very generous dependent daughter, who made charitable contributions last year. Her income was 5,700, so she owes no tax. I understand that charitable contribution deductions can only decrease tax due, so must she sacrifice taking the deduction for her donations to charity? Or since she is our dependent, can we deduct her charitable contributions, then pass on the refund to her? I understand that education expenses are listed on a parent’s return for a dependent student, which is the only reason I wonder if this might be acceptable.

    • Kira Botkin

      Sorry, she made the contribution, so she gets to take the deduction. Similarly, if she paid for her own educational expenses, you wouldn’t get to deduct those either. Next year, you might consider having her give you the money and then you make the contribution in your own name – it’ll be worth a lot more to you than her, but you can’t pass the deduction between people.

      • LWSargent

        Very helpful article, by the way! I tweeted it to let others know about you.

      • Jenny

        Not true about the educational expenses – see Pub 970 – “Qualified educational expenses paid by a dependant for whom you claim an exemption, or by a third party for that dependant, are considered paid by you” – in terms of educational credits

    • LWSargent

      I think I just found an answer to my own question. It seems I can’t deduct her charitable donations from my return, for her benefit. But it’s still worth it having her itemize them on her own tax return this year. From what I gather, her deduction won’t help her now, but it can be carried forward for her as a deduction on her future returns for up to five years. If I’m wrong about that, please correct me.

  • Mcco5068

    Kira, I am 19 and have had 3 part time retail jobs in high school where I got all of the money that was taken out for taxes back in February. I now am in college but have a corporate job working a few more hours than my last job, but for more pay. It is still a part time job, but i will be making around $11,500 this year. I dont know a ton about how tax refunds work, but I am wondering if I will get all of my taxes back?

    • Kira Botkin

      You might not get all of it back, but you will definitely get some of it. How much you get depends heavily on whether your parents are still taking you as a dependent. If you aren’t a dependant, you’ll get most of it back and you might even get some Earned Income Tax Credit to boot. But even if you are still their dependent you should definitely file, especially since you can do it for free through Free File.

  • Nicole

    Kira my 18 year old daughter just started working late August and she is in her last year of high school. She currently is not getting any federal or state taxes taken out of her pay check because we were given the impression that because she was going to make under $3600 this year she qualifies as an exempt. Is this true? Or should she have federal and state taxes taken out of her pay check? It’s all just so confusing. I talk to other people and them seem to think the taxes should be taken! So it’s really stressing me out!

    • Kira

      There is a difference between “won’t pay any taxes in the end” and “exempt” – not earning enough to pay taxes does not mean you should mark yourself as exempt from paying any. In the end, it won’t make any real difference for her, because whatever taxes she does get taken out will be refunded to her. However, “exempt” is a specific category that most people don’t qualify for – but the IRS doesn’t really go around checking, so it’s often misused.

  • Brandi

    My 16 year old just started working last month. I usually claim her on my taxes as a dependent and for the child credit. When I file next year, do I file and somehow include hers on my taxes or does she file separately? It says I can still claim her as a dependent but I don’t understand what that means for if I include hers with mine or her filing? So confused.

    • Guest

      If she earned money she will have to have a separate tax return filed for her.

    • Kira Botkin

      You can’t include her income on your taxes because she earned it (ie it wasn’t dividends or other non-work income.) When you fill out her taxes, most tax programs will have a screen where you can indicate she is the dependent of someone else. Then when you do your taxes, you claim her as a dependent as you normally would.

      • Brandi

        Thank you very much.

  • Henry

    My daughter turned 18 this past December. She is receiving social security survivors benefits and will until she is 19 (she is still in high school). The benefits she receives now goes into her own account and the total dollar amount reported for 2012 is in her name on the SSA 1099. Should she file a separate return in for herself for 2012 and 2013?

    • Kira Botkin

      Unless she’s earning money somewhere else, she doesn’t have to – she isn’t required to by federal law unless she made more than about $9k total this year. Also, SS benefits aren’t taxable unless you make at least $25k per year for a single filer. So it’s unlikely she’d have to, but if she worked anywhere else, she should file to get any money withheld back.

  • klighthand

    We withdrew $1500.00 from an Income Stock fund that is in My daughter’s (15) name. I am the custodian. She received a 1099B in her name. Do I file it with my taxes or do I file her own separately?

    • Kira Botkin

      You CAN file it with your own taxes, but you will probably owe less in taxes if you file her taxes separately.

  • David

    2 Comments

    If researching for tax advice, always, always ensure currency.

    First, this article is dated. I only point it out because I see recent posts. The income requirements listed above are from the 2010 Tax year, the 2012 requirement changed earned income to $5950. The unearned limit remains at $950.

    Second, I believe that one of the examples in “2. Income Guidelines” is incorrect. It states that $200 Earned Income + $500 Unearned Income + $300 = $1000 which is greater than $950 determines a tax filing requirement. The $300 is not being applied correctly and shouldn’t exist in the formula.

    Go to IRS.GOV and find Pub 501 for the current tax year. Goto page 4 and look at table 2. The income requirements for filing in 2012 are as follows:
    Either Earned Income > $5,950
    or Unearned Income > $950
    or Gross Income > the larger of
    ($950) or (Earned Income (up to $5650) + $300).
    In the example above Gross Income is $700 which is not larger than $950. So there is no filing requirement.

    • Kira Botkin

      Yep, we are currently in the process of updating a large number of tax articles that were written in previous years. Thanks for the summary!

  • Higgans

    I filed Expemptby accident this year and caimed just under 4,000 dollars, am i going to get screwed when I file?

    • Kira Botkin

      I don’t know what you’re referring to when you say you claimed just under $4k, but if that’s the amount of money you made, you’re not going to have to pay a lot unless you’re someone else’s dependent.

  • http://www.facebook.com/mike.donovan.52 Mike Donovan

    My nephew (17yrs old) earned $718 in 2012, when his father tried doing the 1040ez form for the child, it was showing that he owed money.
    On his w-2 he had taxes taken out for st, fed, ss and medicare
    how is it possible that he owes $, doesn’t the child still get some kind of exemption for himself? His father did take the deduction for supporting him for the year
    This seems a little crazy, any ideas?

    • Kira Botkin

      When his father takes him as a dependent, his father gets his exemption. The child then no longer has any exemption for himself. If he has no other deductions (and he is unlikely to have any at 17 years old) then yes, it is possible that he will owe a little bit in tax. According to the tax tables if he earned $718, he would owe about $71 in federal taxes. He may not have had quite enough taken out, especially if he worked two different jobs, or had a lot of hours in some weeks and few hours in the rest.

    • Kira Botkin

      I apologize, I misread this. If your nephew does qualify as a dependent child, that amount should fall under the smaller children’s deduction. Only adults completely lose their exemption when taken as a dependent. So no, he should be getting all that back.

  • Joe Parker

    My daughter sold her goat for 1,150.00 dollars at the county fair as an FFA project. She recieved a 10-99. I consider this earned income and under the amount that she is required to declare?

    • Kira Botkin

      Strictly speaking, I think a goat is an asset and selling it creates a capital gain, which is unearned income. But she wouldn’t owe much. What kind of 1099 did she get?

  • Mimi

    Hi I am a 17 year old high school student. I currently am working but as a babysitter/house cleaner. Some jobs such as house cleaning are weekly and I make a set amount of money, others are just whenever someone calls me to babysit. I get paid in a mixture of cash and personal checks. Loosely from my calculations, I will make approximately $7,000 this year. But again this could vary due to unpredictable jobs. A family member also gifted me with $13000 that has been put in an account for college. I live at home in a single parent household relying completely on government support. My parent is not currently working. I have made several charitable gifts to nonprofit organizations and will continue doing so. Do I need to file? And will I loose quite a bit of my money? I’m afraid of loosing to much as I will have to pay for my own schooling after high school and am already concerned how I will achieve this.

    • Mimi

      I also was thinking about getting a part time job with a company. I am currently working 20-30 hours a week

    • Kira Botkin

      My first question is, are they paying you in cash or are you employed through a company that gives you a paycheck? If you’re just getting cash, there is no official record of you having received the money. Just sayin’. And if you are concerned about your financial aid for college, they will count any money you’ve reported on your taxes as what they expect you to be able to contribute. So it’s better in that sense also to not have an official record of having received income.

      If you do get paid by a company that gives you a paycheck and withholds taxes, you have to file to get those taxes back. You probably won’t owe any taxes at all and will get all of that money back. And the $13k gift is a gift, you do not pay taxes on gifts. (If there were any taxes applied, they would be to the giver.) You also don’t make enough money to deduct those charitable contributions from your income.

      In short, if you get paid in cash you can really only lose out (by losing some school aid money) by filing. If you have taxes withheld, you would get those taxes back by filing, but the amount you get back would likely be smaller than the amount of tuition the FAFSA would then assume you would be paying for yourself. (FAFSA I believe counts about 35% of the student’s prior year earned income as going towards tuition.)

      You sound like a very smart and determined person. Apply to your state university, only take out loans that you really need (and no private loans if you can manage it), continue working a little during school, major in something useful, and you will be set for a great life.

      • Sky

        You should ALWAYS report income, no matter if you got an official record or not.

  • Joel

    Hi Kira,

    I filed IRS extensions for my kids and made payments when I did so. Now I’m realizing that it’s makes sense to include my kids on my return. Can I get this money back? Can I include it on my return as tax payments made? Suggestions?

  • Perlyn

    I am a college student and by the end of this year ,2013, my earned income will be around $5400. I don’t have any unearned income. According to your first example I dont have to file taxes. I don’t understand the second example, why did you add both earned and unearned income there but not on the first one? Please help!

  • Kayla

    Hi I am 17 years old & I didn’t file for taxes last year in 2012. My income for that year probably added up to at least $950. Now I didn’t work until this year 2013 but I only made about $500 do I still have to file for taxes & if I do, how do I do it? Plus my mom wants to put me as a dependent on her income tax can she still do it if I have to file for taxes myself?

  • iris

    Hi my name is Iris
    I barely turn 18 and started working just a coupleof months ago. My income has not exceed more than $4,000. And my mom wants to claim me as a dependent, do I have to filled an income tax?

    • Sky

      If you want money back if they withheld any

  • ahmed

    im sixteen and i work at target i recieved a w2 form for my tax refund and i just wanted to know if i had the ability to file taxes seperate from my mother(like at a different time)

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