Adults generally know that they have to file taxes, but whether your child needs to file can be a more difficult question. So, how can parents know when and how to file an income tax return for their children?
Filing Thresholds
The threshold for being required to file is smaller for dependents than it is for non-dependents. This is because the parent or guardian who claims their child as a dependent gets some of the tax benefits on their own returns (in the form of the dependent exemption of $4,000 in 2015). This means that most dependents will need to file a tax return if their earned income (usually from a job) is $6,300 in 2015.
If your child received unearned income (such as dividends, interest, trust funds or capital gains), this filing requirement is even lower. Any unearned income over $1,050 (in 2015) must be reported on a Form 1040. Unearned income filing requirements begin at your child's birth, so be aware of this if he or she receives any profit-making financial gifts from family or friends.
Special Circumstances
There are a few special situations in which a minor may need to file even if they are under these limits. For example, if your child received at least $108.28 in wages from a church that is exempt from paying Social Security and Medicare taxes, they are required to file. Also, if they earned at least $400 from self-employment, filing to pay the self-employment tax (Social Security and Medicare taxes) is mandatory.
How to File
Most minors who need to file can do so on the Form 1040-EZ, the simplest income tax form. This form is appropriate for children who earned money at a part time job and either must pay some taxes or are filing simply to get a refund of their withholding amounts. If your child can understand the instructions and fill out the return, they may sign the return for themselves regardless of age. If not, you may sign it for them. On the signature line, simply write, "By (your name), parent or guardian for minor child."
For more complicated situations -- such as unearned income, reporting tips or filing self-employment -- you may want to consult with a qualified tax service like Balkcom Pearsall & Parrish CPA's PA. A professional may be able to help you determine if you can include your child's unearned income on your own tax return and if this would be beneficial to do. It's also a good time to help your young adult child learn about financial matters and taxes, which can be a valuable lesson they will carry throughout their lives.
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