Sometimes one or more of your children will need to file their own tax returns. This can be true even though they are still your dependents for tax purposes. Generally, a child is responsible for filing his or her own tax return and paying any tax, penalties, or interest on that return. However, if your child does not pay the tax due on this income, the parents may be liable for the tax. Moreover, if a child cannot file his or her return for any reason, such as age, the child's parent or guardian is responsible for filing a return on the child's behalf.
Whether your child is required to file a tax return depends on the applicable standard deduction and how much earned and unearned income he or she had during the year. "Earned income" is income a child earns from working. "Unearned income" is income earned from investments.
To combat the economic downturn caused by coronavirus (COVID-19) pandemic, the IRS is sending stimulus checks to most Americans. Adults receive $1,200. Parents receive $500 for each child under age 17. Children over 17 don't get anything if they are dependents of their parents. These payments are not taxable income and do not count as unearned or earned income for parents or their children.
A child who has only earned income must file a return only if the total is more than the standard deduction for the year. For 2019, the standard deduction for a dependent child is total earned income plus $350, up to a maximum of $12,200. Thus, a child can earn up to $12,200 without paying income tax.
Example: William, a 16 year old dependent child, worked part time on weekends during the school year and full time during the summer. He earned $14,000 in wages during 2019. He did not have any unearned income. He must file a tax return because he has earned income only and his total income is more than the standard deduction amount for 2019.
A child who has only unearned income must file a return if the total is more than $1,100.
Example: Sadie, an 18 year old dependent child, received $1,900 of taxable interest and dividend income during 2019. She did not work during the year. She must file a tax return because she has unearned income only and her total income is more than the unearned income threshold for 2019.
If a child has both earned and unearned income, he or she must file a return for 2019 if:
Example: Mike, a 19 year old college student claimed as a dependent by his parents, received $200 taxable interest income (unearned income) and earned $2,800 from a part-time job during 2019 (earned income). He does not have to file a tax return. Both his earned and unearned income are below the thresholds, and his total income of $3,000 is less than his total earned income plus $350 ($3,150).
Even if your child does not meet any of the filing requirements discussed, he or she should file a tax return if (1) income tax was withheld from his or her income, or (2) he or she qualifies for the earned income credit, additional child tax credit, health coverage tax credit, refundable credit for prior year minimum tax, first-time home buyer credit, adoption credit, or refundable American opportunity education credit. See the tax return instructions to find out who qualifies for these credits. By filing a return, your child can get a refund.
The Tax Cuts and Jobs Act changed the rates for the kiddie taxes. During 2018 through 2025 all net unearned income was to be taxed using the brackets and rates for trusts and estates instead of parent's individual rates. The new rates were as high as 37% on only $12,070 of income. This change proved so unpopular it was rescinded in 2020 and the old rules put back in place. Starting in 2020, income tax on unearned income over the annual threshold must be paid at the parent's maximum tax income tax rate, not the rates for trusts and estates. For 2019 and 2018, parents have the option of using either their individual rates or the trust and estates rates. For details, see the article "The Kiddie Tax."
For federal income tax purposes, the income a child receives for his or her personal services (labor) is the child's, even if, under state law, the parent is entitled to and receives that income. Thus, dependent children pay income tax on their earned income at their own individual tax rates.
For more on tax rules for children, see IRS Publication 929, Tax Rules for Children and Dependents.