Do I Pay Taxes on My Children's Income?

Your Child's Interest and Earnings May be Taxed

Boy (10-12) at desk counting US money
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Did your children earn interest on their savings accounts last year? Did they earn money from part-time work? If so, they may need to file tax returns and pay income taxes.

The rules governing federal income tax for children are laid out in IRS Publication 929 Tax Rules for Children and Dependents, which is updated each year. As tax regulations change yearly, note that all of the amounts stated below were current only for the stated year.

Check the newest publication to see what the limits, thresholds and rules are for the current year.

Your child may also be subject to state and local income taxes. You will need to check with their tax authority for the rules for whether they need to pay those taxes and how to file the return.

Taxes on Interest and Unearned Income for Children

Your dependent children's interest will be taxed if he earned more than a certain threshold amount, which can vary each tax year. You will want to check IRS Publication 929 Tax Rules for Children and Dependents for the current amount, which was  $1050 in 2015. The $1050 includes all unearned income, like dividends and interest.

Taxes on Additional Earnings for Children

In addition to interest earnings, if your child earns money from a part-time job, the requirements will change slightly. Again, check IRS Publication 929 for the current dollar thresholds.

For 2015, children must pay income tax for earned income greater than $6300 in the year, Self-employment net earnings greater than $400, or when earned and unearned total income is greater than the larger of $1050 or earned income plus $300.

See When Do Kids Need to File Taxes? for more information on filing requirements for kids with jobs or self-employment income.

Tax Rate for Children

If your children's interest plus dividends plus other investment income total more than $2,100, part of your child's income will be taxed at your tax rate instead of the child's tax rate. This is commonly referred to as the kiddie tax. The threshold dollar amount and rate may vary, so check the current IRS Publication 929.

How to File Your Child's Tax Return

You can file your child's tax return in one of two ways:

  • Attach it to your return. If your child's only income comes from interest and dividends, you can attach Form 8814 to your return. He must be under age 19 (or a full-time student under 24), and his unearned income must be less than $10,500. However, this may result in higher taxes on qualified dividends or capital gains than the next option.
  • Complete an individual tax return for your child. If the requirements are not met to attach it to your return, or you want to ensure lower taxes, the child should file his own return.

Rules change from year to year, so all advice needs to be checked with the IRS and other taxing authorities as well as consulting with your tax advisor.