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Children and Taxes: Is Your Child Required To File A Tax Return?

Updated on July 10, 2012

Kids & Taxes

As kids get older, it is inevitable that they will want more money to buy things like clothes, music, their first car, etc. This will prompt many kids to get a job or even start their own business to earn money for all the extra "stuff" they want.

For most kids, the last thing they are thinking about when they get a job or start a business is whether they will need to file a tax return or owe taxes on the income they earn. And most kids won't even make enough to file, but some children will be required to file a return based on the amount and type of income they earn.

The rules for children and taxes can sometimes be different than those for adults, so how do you know if your child is required to report their income?

Kids Tax Return: When Are Kids Required To File?

Generally, children who can be claimed on another person's taxes must file their own return if:

* They have wages of $5,700 or higher (this is the standard deduction amount for 2009, the amount for 2008 was $5,450)

* They have unearned income (investment income from interest, dividends, etc.) of $950 in 2009 ($900 in 2008)

* They have total income (both earned and unearned) greater than the larger of $950 or their earned income plus $300.

Kids usually file their own tax return because they earned enough income from a job to be required to file or they paid in taxes and they are expecting those taxes to be refunded. Some children also have investment income in excess of the allowable limits and are required to file taxes to report their unearned income.

The following children may also be required to file a tax return:

* Those who have earned income and who received advanced earned income credit payments from his or her employer,

* Kids who had wages of $108.28 or more from a church that is exempt from employer Social Security and Medicare taxes, or

* Kids who had net earnings from self employment or their own business of at least $400.

Example: Sarah is 15 and is claimed as a dependent on her parents' taxes. In 2008, her only income was $250 that she earned from making jewelry and selling it to her family and friends. In 2008, she is not required to file a tax return.

However, let's assume that word about her jewelry spread and in 2009 she doubled her income. Assuming her net earnings (after expenses) from her jewelry business were $500, she would be required to file a 2009 income tax return.

Children: Tax Filing

If your child is required to file a tax return only because he or she had investment income, you may be able to report the child's income on the parents' tax return, which would eliminate the need to file two returns.

However, children who have earned income from a job or who are self employed must file their own reports. Also, children who have self employed income will need to file two additional schedules - Schedule C Profit and Loss from Business and Schedule SE Self Employment Tax - and attach these forms to their federal income tax return.

Business Ideas For Kids

Kids are always looking for ways to make money. When I was a child, it wasn't unusual to find me running lemonade stands, mowing lawns, or looking for other ways to earn money.

I knew from an early age that I wanted to run my own business someday (running my own bookstore was at the top of the list), so it's no surprise that I run several businesses today.

Today the number of business opportunities for kids have exploded with the growth of the Internet. Many children are taking their desire to earn extra money to heights way beyond the lemonade stand thanks to Web 2.0 strategies such as Twitter, MySpace, Squidoo and Facebook.

There are no age barriers with the Internet, so child entrepreneurs are popping up everywhere.

Click here to continue reading 'Kids Making Money: Do You Have A Child Entrepreneur?'

Parents: want to learn how to minimize your family's taxes?

If you have your own business or if your children have self employment income, you'll want to learn how to hire your children to help minimize your family's tax burden.

Please visit http://www.hireyourchildren.com to learn how.

Got Questions About Kids & Taxes? Submit Them Here!

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    • profile image

      new2taxes 

      7 years ago

      My son is 18, and wanted to file his own taxes â he only earned about $600 for the entire year. I told him NO, because I was going to claim him as a dependant since I still provide 95% of his support (food, clothing, toiletries, transportation to and from school, etc.)

      The problem now is ⦠when I filed my return, it had been REJECTED because apparently he filed for himself anyway even though I told him not to. Is there any way he can call the IRS and cancel his return?

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