Filing tax returns for minor children

Is your minor child earning interest and dividends on the investments you have in his or her name? Or maybe your youngest son is working part-time during the summer as a waiter. Minors (including toddlers) must pay income taxes and you, as a parent, need to know how to file a tax return for your minor child.

Age to declare Income Tax

First, children are never too young or too old to file income taxes if they have earned income or income from savings or investments. Your age doesn’t matter; the amount they earn is what matters. A young child with a savings account funded by doting grandparents may need to file income taxes, while a teenager working odd jobs may not.

Tax Year 2018 Minor Income Requirements

For the 2018 tax year, which is filed by the April 15, 2019, deadline, minor children claimed as dependents on your tax return must file their taxes, meaning you must file them on their behalf, if they meet any of the following conditions:

  • Unearned income is more than $1,050. This includes dividends and interest from savings accounts or investments in the name of the minor child.
  • Earned income is greater than $12,000. This includes money your child earns from a part-time job.
  • Net earnings from self-employment greater than $400.
  • Total earned and unearned income greater than $1,050 or earned income plus $350, whichever is greater.

Please note that the above is a synopsis of the IRS rules that apply. There are numerous exceptions to these rules. So while the above is a reliable summary of the rules that apply, your child’s requirements may differ and you should consult an accountant familiar with her family. IRS Publication 929, “Child and Dependent Tax Rules,” explains these somewhat complex rules in detail. Therefore, it is strongly recommended that you read this document carefully or consult with your tax advisor.

How to file a tax return for a minor

There are two ways to file an income tax return for a minor child, depending on how you earned your money.

  • Attach to the declaration of the parents: If your child is under 19 (or a full-time student under 24) and the child’s income is less than $1,500, and from interest and dividends only, it can be attached to the parent’s return using Form 8814. Also keep in mind that while reporting the child’s income as an attachment to your return is an easy way to file, it may result in higher taxes on qualified dividends or capital gains.
  • Complete individual declaration of the minor: If the requirements to attach it to the parents’ return are not met, or if you want to ensure lower taxes, your minor child must file a return. He or she can file a simple return for free at CompleteTax. Also, see “Optional Tax Return for Minors” below.

Kiddie tax for minors

Although dependent children (under 19 or full-time students under 24) don’t pay taxes on the first $1,050 of unearned income, they pay taxes at their rate on the next $1,050. If the investment income is more than $2,100, part of your child’s income will be taxed at the parent’s tax rate instead of what the child’s tax rate would be. It’s the child tax, which exists to ensure that the government doesn’t lose tax revenue when parents transfer income to their minor children.

Other Filing Requirements for Minors

In addition to income requirements, there are other circumstances in which minors must file an income tax return. An example is Social Security and Medicare tax not collected by an employer. Again, to understand all the requirements, see Publication 929.

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Teach kids about taxes

When you’re working on taxes for your minor child, it’s a great opportunity to teach them about taxes. If they have a job, explain that their employer will withhold taxes from their paycheck. When filing taxes, explain to your child what 1099 or W-2 stubs mean. You should also show them where to enter the numbers on the tax forms. This exercise will help introduce your minor child to the world of taxes and tax returns.

Optional Tax Return for Minors

Even a minor who is not required to file an income tax return can choose to file one. Minors will want to do this if they had taxes withheld from a part-time job and want to get a refund.

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