As your child moves toward adulthood, you face several milestone decisions that involve, in part, a desire to help your child become more independent and responsible. But one milestone for your child that you may not anticipate—even though it will be part of their growing-up experience—is filing that first income tax return.
Most students are not taught how to file taxes in school, even though the Internal Revenue Service (IRS) provides an entire website for educators (titled Understanding Taxes). Reasons vary, from underfunding and a lack of student interest to a general failure of the education system to identify skills students need.
Most children have only a vague idea of income taxes, let alone the specific rules they must meet. It becomes your role as a parent to help your child initiate this rite of passage by evaluating tax-filing requirements and/or obtaining guidance from tax professionals.
This quick guide for parents covers the basic rules that you should know for determining when your child must (or should) file. It also offers suggestions for helping your child take responsibility for their own tax chores in the future. All figures noted in this article are for the 2022 tax year unless stated otherwise.
- Children generally don't receive instruction in school on filing income taxes, so parents should teach their kids when and how to do it.
- Dependents must file under certain circumstances if they have earned or unearned income.
- Other reasons to file include owing taxes, recovering withheld taxes, earning Social Security credits, qualifying for an earned income credit, and opening a retirement account.
- Your child might be allowed to skip filing a separate tax return and include their income on your return under certain circumstances, such as only having unearned income (interest, dividends, or capital gains).
- The Tax Cuts and Jobs Act eliminated certain personal exemptions but you can still take advantage of tax-saving opportunities.
Dependent Child Status
To qualify as your dependent, your child must:
- Have a valid Social Security number (SSN)
- Not file a joint return (if married)
- Be your son, daughter, adopted child, stepchild, eligible foster child, sibling, half-sibling, step-sibling, or offspring of any of these
- Be under age 19 at the end of the tax year, or under age 24 if a full-time student, or any age if permanently and totally disabled
- Live with you for more than half the year in the U.S.
It's worth noting that, with the passage of the Tax Cuts and Jobs Act (TCJA) in 2017, personal exemptions for parents and others with dependents were eliminated.
However, several other tax-saving opportunities remain. These include:
- Head of household filing status
- The child tax credit
- The child and dependent care credit
- The earned income tax credit
- The American opportunity tax credit and lifetime learning credit
- The student loan interest deduction
- The medical expense deduction
When Your Child Must File a Tax Return
Some people mistakenly believe their child's status as a dependent means they don't have to file taxes. But dependent child status does not excuse your child from filing an income tax return in certain situations. A child who meets any one of these tests must file:
- If the child only has unearned income (e.g., from investment interest or gains) above $1,150 ($1,250 in 2023)
- If the child's earned income exceeds $12,950 ($13,850 in 2023)
- If the child has both earned and unearned income, and the child's gross income (earned plus unearned) is greater than either $12,950 ($13,850 in 2023) or their earned income plus $400, whichever is less, which essentially means a dependent child must file if their unearned income is more than $400 and they have any earned income, although there is a minimum threshold of $1,150 ($1,250 in 2023) in gross income
- The child's net earnings from self-employment are $400 or more
Additional rules apply for children who are blind, who owe Social Security and Medicare taxes on tips not reported to an employer or wages received from an employer who didn't withhold taxes, or who receive wages from churches exempt from employer Social Security and Medicare taxes.
If filing a return is required by the first test above and the child has no other income besides unearned income, you can avoid filing a separate tax return for your child by making an election described later in this article.
When Your Child Should File a Tax Return
Even if your child isn't required to file an income tax return, it can still be a good idea to file if:
- Income taxes were withheld from earnings
- They qualify for the earned income credit
- They owe recapture taxes (such as the tax from recapture of an education creditor)
- They want to open an IRA
- You want your child to gain the educational experience of filing taxes
In the first two cases, the main reason for filing would be to obtain a refund if one is due. The others are income-dependent or based on taking advantage of an opportunity to begin saving for retirement or to begin learning about personal finance.
Filing to Recover Taxes Withheld
Some employers automatically withhold part of pay for income taxes. By filing Form W-4 in advance, children who do not expect to owe any income tax (and did not owe income tax the previous filing year) can request an exemption.
Form 1040EZ, used previously for simple individual taxes, is no longer valid for tax years 2018 and beyond as a result of the Tax Cuts and Jobs Act.
Filing to Report Self-Employment Income
Your child can report income from self-employment using Form 1040 and Schedule C to determine profit (as with Form 1040EZ, Schedule C-EZ is no longer used.) If your child has a net self-employment income of $400 or more—or a lower threshold of $108.28 if your child is employed by a church or religious organization exempt from employer Social Security and Medicare taxes—they must file a tax return.
To determine if your child owes self-employment taxes (essentially Social Security and Medicare taxes for those who are self-employed), use Schedule SE. Your child may have to pay self-employment taxes of 15.3%, even if no income tax is owed.
Filing to Earn Social Security Work Credits
Children can begin earning work credits toward future Social Security and Medicare benefits when they earn a sufficient amount of money, file the appropriate tax returns, and pay Federal Insurance Contributions Act (FICA) or self-employment taxes. Your child must earn $1,510 to obtain a single credit (increasing to $1,640 in 2023). They can earn a maximum of four credits per year.
If the earnings come from a covered job, your child's employer will automatically take the FICA tax out of their paycheck. If the earnings come from self-employment, your child pays self-employment taxes quarterly or when filing.
Filing to Open an Individual Retirement Account (IRA)
It might seem a little premature for your child to consider opening an individual retirement account (IRA), but it is perfectly legal if they have earned income. By the way, earned income can come from a job as an employee or through self-employment.
If you can afford to, consider matching your child's contributions to that IRA. The total contribution must be no more than the child's total earnings for the year. That lets your child start saving for retirement but keep more of their own earnings.
It also teaches them about the idea of matching funds, which they may encounter later if they have a 401(k) at work. It will probably make sense for the child to open a Roth IRA if they qualify and begin to benefit from decades of compound interest before retirement and tax-free withdrawals when they do retire.
Filing for Educational Purposes
Filing income taxes can teach children how the U.S. tax system works while helping them create sound filing habits for later in life. In some cases, it can also help children start saving money or earning benefits for the future as noted above.
Even if your child doesn't qualify for a refund, doesn't make enough to earn a Social Security credit, and doesn't want to open a retirement account, learning how the tax system works is important enough to justify the effort.
Helping Your Child File a Tax Return
When it comes to helping your child file their income taxes, you should know the following:
- Legally, your child bears primary responsibility for filing and signing their own income tax returns. This responsibility can begin at any age, perhaps well before your child becomes eligible to vote.
- According to IRS Publication 929, "If a child can't file his or her own return for any reason, such as age, the child's parent, guardian, or another legally responsible person must file it for the child."
- Your child can receive tax deficiency notices and even be audited. If this happens, you should immediately notify the IRS that the action concerns a child.
- According to IRS Publication 929, "The IRS will try to resolve the matter with the parent(s) or guardian(s) of the child consistent with their authority."
Reporting Your Child's Income on Your Tax Return
Your child might be allowed to skip filing a separate tax return and include their income on your return, but only if:
- Your child's only income consists of interest, dividends, and capital gains (unearned income).
- Your child was under age 19 (or under age 24 if a full-time student) at the end of the year.
- Your child's gross income was less than $11,000.
- Your child doesn’t file a joint return for the year.
- No estimated tax payments were made for the year, and no overpayments from the previous year (or from any amended return) were applied to this year under your child's name and Social Security number.
- No federal income tax was withheld from your child's income under the backup withholding rules.
- You are the parent whose return must be used when applying the special tax rules for children.
Explain to your child the basics of Social Security and Medicare and the benefits of earning credits in these programs.
Include your child's unearned income on your tax return by using IRS Form 8814. It's important to note that doing so could result in a higher tax rate for you than if the child filed their own tax return. It all depends on the amount of unearned income your child reports.
Teaching Your Child About Taxes
When your child starts to earn their own money, start talking about taxes right away.
- Go over that first paycheck stub. Talk about gross earnings, any deductions for income taxes, and any deductions for FICA taxes (Social Security and Medicare).
- Tell your child that, depending on their total income for the year, they can probably receive a refund of income taxes withheld but that FICA deductions will not be refunded and will continue to be withheld from earned wages.
- This would also be a good time to explain the basics of Social Security and Medicare and the benefits of earning credits in these programs.
- If it looks like your child's self-employment income will exceed $400, have the same discussion about that process and the different forms they may have to file, as well as the need to keep receipts of expenses and why.
- Explain that two pieces of information are required on every income tax form: the taxpayer's name and tax identification number (TIN) (usually the Social Security number for children). Because the IRS wants these two items to match the data it has on file, remind your child not to use nicknames on tax returns.
- Emphasize that tax returns are normally due by April 15 each year, but that they can file earlier if they are ready and have all the necessary documentation. The IRS typically begins accepting returns sometime in late January.
- Make sure your child understands that tax records are confidential and that they should not leave them where prying eyes could see.
- Encourage your child to sign their own tax return and forms if they are able. Remind them that they are signing under "penalty of perjury," meaning if their return isn't honest, they will be lying under oath.
- Reinforce the importance of paying attention to taxes, filing on time, and taking IRS obligations seriously.
What Is the Child Tax Credit for 2021?
The Child Tax Credit for 2021 rose to $3,600 per qualifying dependent for the 2021 tax year, as per the American Rescue Plan. To receive the credit, certain income requirements must be met.
Do Minors Have to File Taxes?
Minors have to file taxes if their earned income is greater than $12,950 (increasing to $13,850 in 2023). If your child only has unearned income, the threshold is $1,150 (increasing to $1,250 in 2023). If they have both earned and unearned income, it is $1,150 ($1,250 in 2023) or their earned income plus $400—whichever is greater. If the minor is self-employed, they will owe self-employment tax when they reach $400 or above.
What Is the Standard Deduction for a Child?
If you are a dependent, the standard deduction for 2022 is the greater of $1,150 ($1,250 for 2023) or your earned income plus $400. The amount cannot be higher than the basic standard deduction of your filing status.
The Bottom Line
As a parent or guardian, it's up to you to discuss and teach income tax filing to your child. The best way to do this is to start early, be patient, and walk your child through the process carefully. Fully explain as much as you need to but don't feel like you have to address every nook and cranny of tax law. After all, that can be pretty tough, even for experienced taxpayers. Finally, consult a tax professional if you get stuck.