Whether your child needs to file taxes hinges on their income type and amount. Here’s a breakdown of the IRS guidelines and filing process.
No one is exempt from taxes. The IRS wants details on every dollar earned over a specified threshold, even if they’re claimed as dependents. This applies even if they’ve just mastered writing their name in cursive.
When it comes to who must file, IRS rules focus on income, not age.
According to IRS regulations, a child must file if their unearned income exceeds $1,100, their earned income surpasses $12,200, or their total gross income (earned plus unearned) exceeds the higher of a) $1,100 or b) their earned income (up to $11,850) plus $350.
Don’t fret; we’ll simplify this to help your children stay compliant with tax requirements for the 2019 filing season. Just a quick note: The deadline for filing and paying 2019 taxes has been pushed back to July 15, 2020.
Are allowances and odd job payments taxable?
Let’s kick things off with a straightforward topic: income types that the IRS doesn’t tax.
This includes allowances and gifts received for special occasions. Unless little Sally is raking in over $400 from neighborhood jobs like yard work or dog walking, she can generally keep that cash without having to report it.
However, if her side hustle becomes lucrative or if she earns significant investment returns, it’s a different story.
When must a child report income to the IRS?
The IRS is keen on two income categories: Earned income (wages from work and yes, side hustle earnings are taxable) and unearned income (from investments, such as interest or dividends).
If by December 31, 2019, a child earned more than $12,200 or received over $1,100 in unearned income, they must report it to the IRS.
EXAMPLE: If your 16-year-old earned $14,000 from a part-time job, she must file a tax return, even if taxes were withheld. Similarly, an 11-year-old who made $1,300 from dividends must also file.
Your eldest daughter, who juggled a part-time job and earned interest, needs to file if her total income exceeds $1,100, or her earned income plus $350 exceeds $12,200. Here’s a practical example:
EXAMPLE: Imagine she earned $2,750 from odd jobs and $200 in taxable interest. She wouldn’t need to file since her total ($2,950) is below the threshold. But if she earned $600 in interest, then she must file because her total ($3,350) surpasses the limit.
The IRS offers tools to assist. Use the IRS “Do I Need to File a Tax Return?” tool to check if your child needs to file and whether they might be due a refund.
What about scholarships and grants?
For dependent college students, scholarships and fellowships aren’t taxable if used for qualified education expenses (like tuition, fees, and necessary supplies).
However, any funds spent on non-qualifying items—like room and board or travel—must be reported. This also applies if the scholarship required work or teaching commitments.
The IRS has another online assistant for tax matters: the aptly named “Do I Include My Scholarship, Fellowship, or Education Grant as Income on My Tax Return?”
Is hobby income taxable?
In short: No.
But, young entrepreneurs running a business may face self-employment taxes if they earn over $400. If their business is thriving, they may want to start making quarterly estimated tax payments.
For clarity, utilize the IRS “Do I Have Income Subject to Self-Employment Tax?” questionnaire.
To file or not to file
Just because a child must report income doesn’t mean they’ll owe taxes. Conversely, not having to file doesn’t mean it’s unwise to do so.
The IRS doesn’t automatically issue refunds; filing a return is necessary to receive any owed refund. If a college student can claim an education credit (like the American Opportunity Credit), filing may be beneficial.
Not all situations necessitate separate filings for children. They might fulfill tax obligations by being included on your return.
In cases where a child’s only income is unearned (interest, dividends, or capital gains) and it’s under $10,500, you can report that income on your personal return. (Take a moment to digest that.)
Attach Form 8814 to your 1040 to include a child’s unearned income. Note that this will subject her income to your tax rate, which may be higher than hers. If that’s an issue, have her file individually.
How to file taxes for a child
The IRS is serious about collecting its dues. If your child needs to report income, Uncle Sam expects their tax filings on time. To ensure everything goes smoothly…
- Meet the adult filing deadline: If your child can’t file themselves, you (as their parent or guardian) are responsible for filing on their behalf. You’re accountable for any tax owed and any penalties for late filing or underpayment. Plus, you’re the primary contact if the IRS has questions.
- Indicate the child is a dependent: You can still claim your young taxpayer as a dependent if they rely on you for most of their support and live with you for more than half the year. On their return, they’ll need to check the box indicating they can be claimed as a dependent.
- File with the custodial parent’s return: If including the child’s investment income on your return, use the one for the parent filing jointly. If filing separately, include it on the return of the parent with the higher income. For separated parents, the custodial parent should report the child’s income.
- Sign the return accurately: Stickers or crayon marks won’t work. If they can’t sign, you can sign for them, writing “By [your signature], parent [or guardian] for minor child.” With older kids, make this a learning moment about adult responsibilities. Tax software can simplify the process and check your entries.
- Prepare to file via mail: If it’s your child’s first encounter with the IRS, they might not be allowed to file electronically. That’s fine—this is a chance to show them how it was traditionally done, using printers, stamps, and good old-fashioned mail.
