Parent and Guardians Guide - When Are Children Required to File their own Returns
As a tax professional, it's essential to guide parents and guardians on when their children are required to file their own tax returns. The obligation for a child to file depends on the type and amount of income they receive.
1. Earned Income
Earned income includes wages, salaries, tips, and earnings from self-employment. For the 2024 tax year, a dependent child must file a tax return if their earned income exceeds $14,600. This threshold corresponds to the standard deduction for single filers. Even if a child's income is below this amount, filing a return might be beneficial to claim a refund for any withheld taxes.
2. Unearned Income
Unearned income encompasses investment-related earnings such as interest, dividends, and capital gains. If a child's unearned income surpasses $1,300 in 2024, they are required to file a tax return. Parents have the option to report their child's unearned income on their own tax return using IRS Form 8814, but this can sometimes result in a higher tax liability.
3. Combined Earned and Unearned Income
When a child has both earned and unearned income, the filing requirements are determined by combining these amounts. A child must file a tax return if their combined income exceeds the larger of $1,300 or their earned income plus $450. For example, if a child has $1,000 in earned income and $500 in unearned income, their total income is $1,500, which exceeds the $1,300 threshold, necessitating a tax return.
4. Self-Employment Income
Regardless of age or dependency status, if a child's net earnings from self-employment are $400 or more, they must file a tax return. This is to ensure the payment of self-employment taxes, which cover Social Security and Medicare contributions.
5. Additional Considerations
Beyond income thresholds, there are other scenarios where a child may need to file a tax return:
Taxes Withheld: If an employer withheld income taxes from a child's paycheck, filing a return is necessary to potentially receive a refund, even if the total income is below the standard deduction.
Investment Income Reporting: Parents can elect to include a child's unearned income on their own tax return using Form 8814 if certain conditions are met, potentially simplifying the filing process.
It's crucial to assess each child's financial situation individually to determine their tax filing requirements. Consulting with a tax professional can provide personalized guidance based on the latest tax laws and regulations.