Posted by

Get To Know The Tax Rules For Your Children

Get To Know The Tax Rules For Your Children

Everyone is responsible when it comes to paying their own taxes. The Internal Revenue (IRS) is very strict in implementing this rule to everyone: regardless of your age, are required to file a tax return and pay the appropriate income tax in any year your gross income exceeds a specific level. This requirement covers children you claim as dependents. Children have flexibility in choosing how to comply compared to adult taxpayers. 

Dependent Children

Dependent children are responsible to submit tax returns if they earn a certain income for the year. There are different variations in filing rules that may apply to children and even the smallest amount of income may require a return. 

Check all the requirements if your child could pass as your dependent first or else, their obligation to file a tax return will be the same as a normal adult taxpayer. There is a tax rule that will allow you to claim a dependency exemption for your child if your child lives with you for more than half of the year, you don’t cover more than half of their financial necessities, and under the age of 19 or under 24 during the whole tax year. But, if your child lives outside of your home because of educational matters, then you are still eligible to claim the exemption even if they are not physically living with you during that tax year period. 

A Child’s Earned Income

In regards to your child’s earned income, the IRS treats it differently from other taxpayers. It depends whether they earned it by working or through investments. All dependent children who have an income of more than $6,350 in the year 2017 must file an income tax return and there’s a high possibility that they will owe tax to the IRS. This will only be applied to your child’s wages and salaries that they receive whenever they will provide a service to an employer even if it could be a part-time job. 

However, it is still better to file a tax return for them, if your child earns less than the specific amount mentioned above because there’s a high possibility they could be eligible for a tax refund. No matter how much is the amount of income your child has, the standard deduction is still different from yours. As long as it will not exceed the amount of $1,050 or their earned income plus $350 and a maximum of $6,350. 

Child's Investment Income

There’s a different rule when your child receives their income through investments such as interest and dividend payments. If a  specific amount of $1,050 will be reached or if it will exceed then that’s the time you have to file for a tax return for your child. If your child only has their unearned income from interests and dividends, then you have an option to include it on your return and add it up in your income. You can do this by filling out the IRS Form 8814 and you should attach this to your personal tax return.

Filing a Tax Return on Behalf of Your Child

Before you will think of including your child’s income tax on your own, you should think carefully if you are up for higher income tax rates.  Your income tax depends on the level of income you have. If you are in a higher income tax bracket then higher income tax rate will apply too. But, if you are planning to file a separate income tax return for your child, then there would be the same reduced standard deduction rules stated above.

If your child is knowledgeable enough to file his own tax return, then the responsibility to file is his or hers. You have an option to file it for him, or you can include him on your own income tax return. If you will be the one who will prepare your child’s return, then you can sign it on his behalf provided that he’s unable to sign it himself. Never forget to include your own signature and a notation as a proof that you are signing as the child’s parent or legal guardian. In signing your child’s return, it allows you to discuss with the IRS in case there will be some question that will arise later on. But, if your child is capable enough to sign his own tax return, then he is free to do it with your guidance as a parent.

Contact This Member