Posted by KLSM CPA Firm PLLC

Tax Filing Requirements for Children

Tax Filing Requirements for Children

The IRS requires all taxpayers to file an income tax return, regardless of their age.

The Internal Revenue Service (IRS) requires all taxpayers, regardless of their age, to file an income tax return and pay the required income tax each year in which their gross income exceeds certain levels. This requirement extends to children declared to be dependent. However, unlike adult taxpayers, kids have more flexibility in choosing how to comply.


Dependent child

Your dependent child must file an income tax return if they earn any income during the year. Different deposit rules apply for children, and even small incomes can claim a refund.

You need to be sure that your child is eligible to be your dependent; otherwise, your obligation to file an income tax return is the same as for adults. Tax laws allow you to apply for a dependent credit for a child if they have been living with you for more than six months, providing at most half of the financial assistance, and are under 19 years of age during the year or under 24 if they are a full-time student.

If your adult child lives away from home due to educational purposes, you can still apply for credit even if your child does not live with you physically during the year.


Your Child's Earned Income

Unlike other taxpayers, Uncle Sam treats your child differently, depending on whether they earn money by working or investing. All dependent children earning more than $12,550 in 2021 must file a personal income tax return and may be obligated to pay taxes to the IRS. Earned income only applies to the wages and salaries your child earns due to rendering services to an employer, be it full-time or part-time work.

However, even if your kid earns less than $12,550 in 2021, it might be a good idea to file an income tax return for them, as they may be eligible for a tax refund. No matter how much income your child receives, their standard deduction is different from yours. You can never exceed the amount greater than $1,100, or your income will bring in an additional $350, with a maximum of $1,550.


Your Child's Investment Income

The rules are different when your child receives income from sources other than work, such as interest and dividend payments. When the total 2021 income exceeds $1,100, your child must be reimbursed.

If your child's unearned income consists only of interest and dividends, you can choose to include it on your return and relate it to your income. To do this, complete IRS Form 8814 and attach it to your tax return.

However, depending on your income level, this choice could result in higher income tax than you would get if you prepared a separate income tax return for your child. This is because it can push you towards a wider range of taxes where higher tax rates may apply. If you decide to file separate returns for your child, the same standard reduced deduction rules described above will apply.


Filing your Child's Income Tax Return

The responsibility for filing your child's income tax return rests with your child if he or she can do so. If he is not old enough to know how to file an income tax return, it is up to you to do it for him/her or to include it in your income.

If he/she prepares the return, you can sign it for him/her if he/she cannot do it independently. However, you must include your signature and a note for the child as a parent or guardian. Signing the child's return allows you to discuss the issue with the IRS if questions arise later.


FOR MORE INFORMATION ON HOW KLSM CPA FIRM, PLLC. CAN BEST HELP YOU WITH YOUR TAX FILING NEEDS, PLEASE CLICK THE BLUE TAB ON THIS PAGE.


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