February 4 2023

Understanding Children Income Tax Rules

Table of Contents

Understanding the Children Income Tax Rules: An Overview for Parents

As a parent, you want the best for your children, including financial stability and security. And while you may not think about it often, your child’s income is subject to taxes just like yours. The Children Income Tax Rules can be confusing, especially for first-time filers. In this article, we’ll help you understand the tax requirements for dependents and the exemptions available, so you can make informed decisions for your family.

Need help filing your taxes?
Click here to Book an online appointment

What are the Children Income Tax Rules?

The Children Income Tax Rules refer to the tax laws and regulations that govern the taxation of a child’s income. These rules determine the tax liability of children under the age of 18 and over, depending on the source and amount of their income. The Children Income Tax Rules are designed to help parents understand their obligations and responsibilities when it comes to paying taxes on their child’s income.

Child’s filing requirements

When is my child required to file a return?

Your child must file a tax return for 2022 if any of the following apply:

they had only unearned income (interest, dividends, capital gains) of more than $1,150
they had only earned income (wages, salaries, tips, fees) of more than $12,950
they were self-employed with $400 or more income

(Please see IRS Publication 501 for more details and exceptions)

If your child had both earned income and unearned income:

they had unearned income of more than $400, and gross income of more than $1,150, or
they had unearned income of $400 or less, and gross income of more than $12,950

Note: Gross income is income from all sources (other than tax-exempt income) that must be included on your child’s tax return

If your child is 18 or younger, or a full-time student aged 19 – 23, and required to file a return, you may be able to report their income on your return using Form 8814, “Parents’ Election to Report Child’s Interest and Dividends.” If you report their income on your return, the child does not have to file their own return.

If you choose not to report your child’s income on your return, or you are not entitled to use Form 8814, the child must file their own return. In addition, your child may have to file Form 8615, “Tax for Certain Children Who Have Unearned Income” as part of their income tax return.

Who is Eligible for Children Income Tax Rules?

All children who earn an income, regardless of their age, are subject to the Children Income Tax Rules. This includes children who have a part-time job, receive dividends, or earn income from a trust. The amount of income that a child earns will determine their tax liability and whether they need to file a tax return.

What are the Tax Requirements for Dependents?

The Tax Requirements for Dependents are the same as those for any other taxpayer. The child’s taxable income must be reported on their tax return, and any taxes owed must be paid. The tax liability will depend on the amount of income earned and the child’s filing status. If a child’s taxable income is below a certain threshold, they may not need to file a tax return.

Exemptions and Deductions Available under Children Income Tax Rules

There are several exemptions and deductions available to children under the Children Income Tax Rules, including:

Personal Exemption: This exemption is available to all taxpayers, including children, and is worth $12,950 for the 2022 tax year.
Child Tax Credit: This credit is worth up to $2,000 per child under the age of 17. The credit is available to parents who earn less than a certain amount and is designed to help offset the cost of raising children.
Earned Income Tax Credit (EITC): This credit is available to low-income workers and is designed to help offset the cost of working. Children who earn an income from a job may be eligible for the EITC.

Common FAQs on Children Income Tax Rules

Do children need to file a tax return if they earn less than a certain amount?

The answer to this question will depend on the amount of income earned and the child’s filing status. If the child’s taxable income is below the standard deduction, they may not need to file a tax return.