Dependent children with earned or unearned income may not have to file a tax return if their earnings fall below certain thresholds. As of the 2019 tax year, dependents are required to file if their earned income exceeds $12,200 or if their unearned income exceeds $1,050.
To be considered a dependent, a child must be 19 or younger for the entirety of the tax year in question or 24 or younger if a full-time student.
If you have an accountant or other preparer handle your income taxes, they typically will file your children's taxes as part of the process. If you handle your own taxes, there typically are multiple free filing options available online for dependents.
Earned income is pay children receive from an employer for work performed. This includes earnings from operating their own business or from contract work for things such as modeling.
States with income taxes also require minors to file, typically if their income exceeds the state's exemption allowance. Consult with a tax professional or your home state's tax code for details.
Even if a child's earnings fall below the $12,200 threshold, employers might still withhold taxes. In that case, it is a good idea for a minor to file a tax form in order to receive a refund on the amount withheld.
Unearned income is money from gifts or from investments, such as dividends, interest, and capital gains. Basically, any income that does not come from employment is considered unearned.
IRS rules regarding unearned income are slightly more complicated due to "kiddie tax" rules designed to prevent parents from avoiding taxes by transferring large gifts of stock to their children. As of 2019, unearned income between $1,050 and $2,100 is taxed at the child's tax rate. Income exceeding $2,100 is taxed at progressive rates that start at 10%, then increase to 24% for income more than $2,500, to 35% for income more than $9,500, and to 37% for unearned income topping $12,500.
Taxes As an Educational Tool
While nobody likes to pay taxes, one of the benefits have minors being required to file is that it helps introduce them to an important part of personal finance. When they get their first part-time job, parents have an opportunity to help teach them what a W-4 is and how to fill one out.
If teens have unearned income from savings accounts or investments, help them to track these accounts and collect the documents they'll need when filing their income taxes. The earlier they understand the process, the more likely they are to be responsible when they gain their independence.
Then, reviewing the first pay stub is an opportunity for parents to help children understand withholdings and how that impacts the way they should budget. It might be easier and faster to file taxes for children, but by having them involved, they learn about the process and can build good habits for saving financial documents and understanding their responsibilities as taxpayers.
Disclaimer: This is not intended to be advice specifically for you and your situation. Please consult a professional CPA for specific advice.