The Internal Revenue Service requires all taxpayers, regardless of age, to file a tax return and pay the appropriate income tax in any year their gross income exceeds certain levels. This requirement extends to the children you claim as dependents. However, unlike adult taxpayers, you may or may not have to file a child’s tax return.
Dependent children
Your dependent children must submit tax returns if they earn certain amounts of income during the year. Different filing rules apply to children and even small amounts of income may require a return.
You must ensure that your child is eligible to be your dependent; otherwise, you will have to file the child’s tax return the same way adults do. The tax rules allow you to claim a dependency exemption for a child if they reside with you for more than half the year, don’t provide more than half of their own financial support, are under the age of 19 at all times during the tax year, or under 24 if a full-time student, and if they earn less than $3,950 in that year.
If your adult child lives outside of the home because of educational obligations, you may still claim the exemption even though the child does not physically live with you during the year.
Your child’s earned income
Unlike other taxpayers, the IRS treats your child differently depending on whether they earn money from work or through investments. All dependent children who earn more than $6,200 of income in 2014 must file a personal income tax return and might owe tax to the IRS. Earned income only applies to wages and salaries your child receives as a result of providing services to an employer, even if only through a part-time job.
However, even if your child earns less than $6,200 during 2014, it may be a good idea to file a tax return for them, because they could be eligible for a tax refund. Regardless of the amount of income your child earns, their standard deduction is different than yours.
Your child’s investment income
Special tax rules may apply to some children who receive investment income. Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust. When the annual total of this type of income exceeds $1,000, then a return must be filed for your child.
If your child’s unearned income only consists of interest and dividends, then you can elect to include it on your own return and combine it with your income. If your child’s total investment income is more than $2,000 then your tax rate may apply to part of that income instead of your child’s tax rate.
If you make this choice, then your child will not have to file his or her own return.
If your child’s investment income was $10,000 or more in 2014 then the child must file their own return.
Filing your child’s tax return
The responsibility for filing your child’s tax return rests with your child if he is capable of doing so. If he is not old enough to understand how to prepare a tax return, then it becomes your responsibility to file it for him or to include his income on your return.
Questions? Please contact us to schedule an appointment with one of our Dallas CPAs for your individual and business tax filing needs.
