It is said that there are two certainties in life – one of those is taxes. Even the young cannot escape this, depending on the type and amount of income they have each year.
For this discussion, a "kid" will be anyone who is claimed as a dependent on another taxpayer's return. Please see the IRS website or IRS Publication 17 for specific details on meeting the criteria of a qualifying child or dependent.
There are two different income types that may be subject to reporting and income tax. They are earned and unearned income. Earned income comes from working for an employer or providing a good or service as a business owner or an independent contractor. Typical forms of earned income include wages, salaries, tips, and bonuses. Unearned income is what it sounds like – income received without being engaged in a business or trade. Examples include interest, ordinary dividends, and unemployment compensation.
No matter a person's age, if they have either of these types of income and the amounts exceed certain IRS thresholds, that person is responsible for reporting the income. These minimum filing requirements may change from year to year, so it is a good idea to review these annually to determine if a tax return is needed. Each year, the IRS updates Publication 929, which contains the most current information regarding filing requirements for kids with income. This publication can be found at www.irs.gov, search Pub 929.
For the tax year 2018, if a child is being claimed on someone's tax return and has more than $1,050 of unearned income, that income is reportable. The unearned income minimum increases to $1,100 for 2019. A child with more than $12,000 in earned income would need to file their own tax return. The minimum for earned income increases to $12,200 for 2019. All these amounts increase if the dependent is 65 or older or blind.
Who is required to report the income? If a child has only earned income or a combination of earned and unearned income, the child must file their own return. A person who is legally responsible for the child must make sure that the child's return is filed if the child is unable to do so due to circumstances such as age. This person may have to sign the child's return, also indicating "parent for minor child" next to their signature. If the child can sign on their own, they should do so.
In a case where the child has only unearned income and is being claimed by someone else, the person(s) claiming the child may make an election to include that unearned income on their tax return. Form 8814 would be included in the tax filing to report the unearned income of the dependent. Beginning in 2018, with changes made by the Tax Cut and Jobs Act, the tax rate on the child's unearned income is figured by using the trusts and estates tax tables.
Children who have earned income from a part-time or summer job but do not meet the filing requirement may still want to consider filing a tax return. If their employer withheld federal income tax from their wages, they can file a return to have the withheld federal taxes refunded to them.
As with all tax matters, there are several less common situations that may fall outside of these general guidelines. It is always wise to consult a tax professional to be sure all income is reported correctly.