When Should Your Child File Their First Tax Return?
As parents, one of the most important milestones for your children as they approach adulthood is helping them file their first tax return. This is not something normally taught in school, so there can be many questions from both the parent and the child when filing for the first time.
Below are a few rules that can help you determine if your child should or must file their own return.
The taxpayer can claim the child as a qualifying dependent on their tax return if they meet one of the following requirements:
1. The child is under age 19 at the end of the year.
2. The child is under age 24 at the end of the year and is a full time student.
3. The child is permanently disabled at any age.
In order to claim an exemption for a dependent child, whomever claims the dependent must provide at least 50% of the child's support and the child must live with the adult at least half of the year. Parents, step-parents, foster parents, siblings and grandparents may claim children as dependents.
There are four different tests that you should use to determine if your qualifying dependent child should file their own federal tax return:
1. The dependent has unearned income (which includes investment interest or gains) that is above $1,050
2. The dependent has earned income for the year of over $6,300
3. If there is gross income that is more than the $1,050 or the $6,300 earned income.
4. The dependent has net earnings from self employment that is more than $400.
If the dependent qualifies for any one of the four tests, then it requires a tax return for that given year. If the child works somewhere that pays taxable income, the employer will sometimes automatically withhold taxes from
their income. If that is the case then the child should file a return to get a refund from the IRS. To avoid the tax withholding the child should make sure to fill out a W4 with the employer to ask for no taxes to be withheld.
As a parent you should have discussions with your children about taxes when they get their very first job or start their
first investment. You should let them sit with you when you do your return or when you meet with your tax professional
to get an understanding on how to do taxes and what is required when they get older and start doing their own. Even if they are not a point where they are required to file their own taxes, it can be a great learning experience for them.