Does My Child Need to File Tax Returns?

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As April 15 approaches, most Americans are focused on filing their tax returns, or at least on gathering the information necessary to file them. In this process, parents often ask whether or when their children, particularly older teens and young adults, need to file their own returns. There are a number of different rules that determine when a return must be filed, and they cover situations from a child who earns interest on a savings account to a teenage heartthrob making millions to young beneficiaries of generational trusts.

The following information is intended to help clarify the rules and does not replace advice from a tax preparer familiar with individual circumstances.

Is the child a qualified dependent child?

For federal tax purposes, a qualified dependent child must be either under 19 at the end of the year or a student who has not attained age 25 by the end of the year. In addition, the child must live with the parent and must not provide 50% or more of their own support. In each case, the child must be younger than the taxpayers claiming the child as a dependent. The age limits do not apply if the child is permanently and totally disabled. If a child meets these requirements, the child’s parent can claim the child as a dependent on their own tax return.

If the child is not a qualified dependent child

Parents may also claim a child who does not meet these requirements under the dependent relative rules. For this status, the child must not qualify as a dependent child, must live with the parent, must not have gross income in excess of $4,700, and must not provide 50% or more of their own support. There are a number of other rules to claim a non-qualifying child or another relative as a dependent, which can be found here https://www.irs.gov/credits-deductions/individuals/dependents.

Income reported on the parent’s return

If a dependent child received less than $12,500¹ in income and that income consisted of only interest and dividends, then the parent can elect to include the child’s income on their own return by filing form 8814. This is helpful in situations when younger children have a savings account or assets held in a Uniform Transfers to Minors Account (UTMA) where the income is reported under the child’s taxpayer ID number. This treatment is not required, however, and this income can be reported on a separate return for the child if the parent prefers.

Reporting a dependent child’s unearned income

A child’s unearned income is income not generated by work or services. This includes interest, dividends, capital gains, pass-throughs from trusts for the child’s benefit, and income earned by assets held in a UTMA account. Regardless of age, a child must file a tax return if they have more than $1,250 in unearned income and their parent(s) did not report the income on their return using a form 8814.

Reporting a dependent child’s earned income

If a child has no unearned income, they will need to file a tax return if they have earned income (wages, tips, salary, performance fees, or income from self-employment) that exceeds the standard deduction of $13,850 for 2023 income or $14,600 for 2024 income. For this purpose only, taxable scholarships are also treated as earned income.

Filers with less than $79,000 in adjusted gross income in 2023 are eligible for the IRS free file program. For more information, see https://www.irs.gov/filing/free-file-do-your-federal-taxes-for-free

Dependent child with both earned and unearned income²

If a dependent child has both earned and unearned income, their filing requirement is based on their gross income (the sum of their earned and unearned income). A child in this situation must file a tax return if their gross income exceeds the greater of (a) $1,250 or (b) their earned income (not to exceed $13,450 for 2023) plus $400 for 2023. For 2024, item (b) is earned income not to exceed $14,150 plus $450.

Example:
Dylan is 18 and not disabled. For 2023, they had $10,000 in unearned taxable income that includes interest, dividends and capital gains earned by assets held in a UTMA account for them; interest from a savings account; and $6,000 in earned income from a parttime job. Dylan is a qualified dependent child.

• Dylan’s income includes items that preclude their parents from reporting Dylan’s income on form 8814 attached to the parents’ return.
• Dylan’s income exceeds the filing threshold, so Dylan will need to file a tax return.
• Because Dylan is a dependent child and has unearned income in excess of $2,500, Dylan is subject to the Kiddie Tax and will need to filing form 8615.

What tax rates apply to a dependent child’s income?

A dependent child who has more than $2,500 in unearned income is subject to what is called the “Kiddie Tax.” The Kiddie Tax requires the unearned income in excess of $2,500 to be taxed at the tax rates applicable to the child’s parent(s). If a child falls into this category, they will need to file form 8615 with their tax return and calculate their tax in accordance with those instructions, based on the income of the parents. The child’s unearned income between $1,250 and $2,500 will be taxed at the child’s rates.

Filing requirements for non-dependent children

If a child is not disabled and is over age 18 and not a student, or is over age 24, they no longer can be claimed as a dependent. This also applies if the child is self-supporting. Children who are not dependents will need to file a tax return if they earn income in excess of the standard deduction from any source. For an unmarried taxpayer, the threshold for 2023 income is $13,850, and for 2024 income is $14,600. Note that if a child’s income was less than that amount, they still may want to file a return if income tax was withheld by their employer, as the amount withheld can be claimed as a refund.

If you have questions about your child’s obligation to file a tax return, consult your tax preparer or your legal advisor.