Is Your Child Required to File a Tax Return?

Many kids get part time jobs or start companies to earn extra income, especially when they turn into teenagers and they want cars, gas for cars, clothes, etc. Most of them don't give a though to taxes when they get a job or start a business.

Some children will need to file a tax return, based on how much income and what type of income they have. The IRS has different tax rules for dependents, so how do you know if your child is required to file a tax return?

In general, kids who are dependents (who can be claimed on someone else's tax return) must file a tax return if:

- they have earned income of $5,700 or higher (this is the standard deduction amount for 2009, the amount for 2008 was $5,450)

- they have unearned income (investment income such as interest or dividends from stocks or mutual funds) of $950 in 2009 ($900 in 2008)

- they have gross income (both earned and unearned) in excess of the larger of $950 or their earned income plus $300.

Kids usually file their own tax return because they earned enough income from a job to be required to file, they paid in some taxes through a job and they want a refund, or because they have investment income in excess of the allowable limits.

However, some kids may also be required to file a tax return, including:

- those who have earned income and who received advanced earned income credit payments from his or her employer,

- kids who had wages of $108.28 or more from a church, that is exempt from employer Social Security and Medicare taxes, or

- kids who had net earnings from self employment or their own business of at least $400.

Here's an example of a teenager who IS required to file a tax return: Tommy is 14 and his parents claim him as a dependent on their tax return. In 2008, Tommy started a lawn mowing business and earned $750, after paying for gasoline and other expenses. Because he is considered self employed and earned more than $400, Tommy must file a tax return. On the flip side, if Tommy had worked for someone else as an employee and only earned $750, he would not have been required to file a tax return.

Filing your child's tax return:

If your child is required to file only because he or she had investment income, you may be able to report the child's income on the parent's tax return, which would eliminate the need to file two tax returns.

If the child is required to file because she has earned income from an employer, or if she has a business of her own, then she will need to complete her own tax return. In addition, children with their own businesses will need to complete Schedule C - Profit or Loss From Business and Schedule SE - Self Employment Tax and attach these to their income tax return.

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