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Is Your Child Required to File A Tax Return?

by
Bob Mason
on
12/15/2019
Is Your Child Required to File A Tax Return?

Note: The tax filing and payment deadline for 2019 tax returns has been delayed from April 15, 2020 to July 15, 2020.

As an adult, you’re well aware of the inevitability of having to pay income taxes, but it’s a hard notion to explain to a child. Still, it may be a good idea to sit down and have that discussion, especially if your dependent or dependents are earning income from a job or as a result of dividend or investment income.  Here’s what you need to know as a parent.

Once an individual’s gross income exceeds a certain level, the Internal Revenue Service requires that a tax return be filed, regardless of the income earner’s age.  The good news is that when it comes to the filing process, returns for children can be completed in a number of different ways.

First Things First

The first step is to establish with certainty whether the minor child is your dependent. A dependent child is defined as one that is either under the age of 19 at all times during the tax year or under 24 if they are a full-time student. They need to live with you for more than half of the year (unless they qualify under temporary absence which includes when they are a student living away from home) and they must rely upon you for more than half of their financial support. If a child does not meet these requirements then they are not your dependent and need to file their tax return on their own.

How The IRS Considers Children’s Earned Income

Once you have established dependency, the next question is what type of income the child has earned. This is because the IRS has different requirements and thresholds for income from work then from investments. 

  • Earned Income - For tax year 2019, the cutoff for earned income (which is defined as income from wages and salaries received as a result of providing services to an employer or earnings from self-employment) is $12,200. If a child exceeds that amount of income, they must file a personal income tax return, and may in fact either owe money or be owed a tax refund. Children have their own standard deduction, which for 2019 is the greater of $1,100 or the child’s earned income plus $350, but it is not to exceed the $12,200 standard deduction for a single individual.
  • Investment Income – Children are also required to file a tax return for income exceeding $1,100 earned through interest, dividend payments, or similar sources. Where the child has no earned income and the investment income is less than $11,000 a parent can elect to include the income on their own 1040 and the child is not required to file a return. However, you need to be aware that there is a chance that doing so could conceivably put you over the threshold into a different, higher tax bracket. If that is the case, filing a separate return for your child (with the reduced standard deduction described above applying) may be a better option.

Whose Job Is It?

Needless to say, whether your child’s income is earned or unearned, if they are too young to prepare their own tax return then the responsibility to do so is yours. If your child has the maturity and ability to file their own return it is officially their responsibility, so you may want to provide them with this important lesson on being a taxpayer. However, make sure they check the “dependent of another” or the IRS will deny you the dependency for child.

Parents who prepare their child’s return can either have their child sign for themselves or do so on their behalf, noting that you are signing for them as their guardian or parent. This is a good idea in either case, as this notation provides you with the ability to speak on your child’s behalf should the IRS audit or question the return.

To ensure there are no major issues overlooked, it's highly recommended to consult your tax professional on these matters.

Bob Mason, CPA writes for TaxBuzz, a tax and accounting news and advice website. Reach his office at [email protected].  

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Bob Mason

Bob Mason

Bob Mason is the founder of Coast Financial Services Inc. servicing both the Santa Cruz, and San Jose areas. Bob Mason is a skilled financial professional who is fully equipped to assist any of your accounting needs. Founding his firm in Santa Cruz, Bob understands the importance of small businesses and how they form the backbone of the area. Coast Financial Services, Inc. has been dedicated to the growth and profitability of businesses in Santa Cruz for 17 years. To learn more about Bob Mason and the rest of his team, visit their website.

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