Do My Kids Need To File Taxes?

I was recently asked by a client if their children needed to file a tax return. As with most answers to tax questions, the answer was “It depends.” (P.S. The answers are most likely the same if you are asking if you need to file an income tax return.)

What does it depend upon?

It depends upon the amount of income amount and type of income.

Earned Income – If your child has earned income (worked a job, received a W-2), they do not need to file a tax return unless that income is greater than the standard deduction (For 2020 it is $12,400). If more than the standard deduction, they need to file.

Self-Employment Income – If you child runs their own business and has a profit of more than $400, they need to file a tax return and may owe self-employment taxes but not income taxes if total income is less than the standard deduction.

Unearned Income – If your dependent child has unearned income such as interest and dividends or passive income, they must file a return if the unearned income exceeds $1,100 or the parents may elect to report this income on their personal return and note “election to modify tax on unearned income of ___ child”. If the parent elects this treatment, the child may not need to file a return if the Earned or Self-Employment Rules above don’t apply. Unearned income over this amount may be subject to “kiddie tax” rates of either the parent’s income tax rate or that of a trust or estate.

The need to file a return is independent of whether or not a parent can claim the child as a dependent.
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There are also times your child may want to file a tax return even though they are not required to do so. If they had federal or state income tax withheld on their W-2 or paid estimated taxes, they will need to file to claim the refund. There are also times that a non-dependent child may want to file in order to claim certain tax credits such as the earned income credit or the recovery rebate credit (stimulus checks not received.)