Whether your child has to file a tax return depends on the amount of income she received during the year. Income reported on Form 1099 can be either earned or unearned income, and the Internal Revenue Service has different filing dollar limits for each. If your child has a significant amount of unearned income, it may even be taxed at your tax rate instead of hers.
Earned and Unearned Income
Dependent children must file a tax return if they earn more than $6,200 in earned income or $1,000 in unearned income, as of the 2014 tax year. Most earned income comes from wages, salaries and tips reported on Form W-2. However, 1099-MISC income from self-employment, freelancing and contracting work is also considered earned income. Unearned income is interest, dividends, rents and royalties. Interest appears on Form 1099-INT, dividends are on Form 1099-DIV and rents and royalties are in boxes 1 and 2 of Form 1099-MISC.
Video of the Day
If your child has a significant amount of unearned income, it may even be taxed at your tax rate instead of hers.
To complicate matters, there are different requirements if your child has both unearned and earned income. If your child has both types of income and unearned income is over $1,000, she must file. She also must file if the combined income is more than the larger of $1,000 or earned income plus $350. For example, say your daughter earned $200 in wages and $500 in unearned interest. Because the total $700 is larger than $200 plus $350, she must file.
A Dependent's Income Tax Return
If your daughter does have to file a tax return, she can file Form 1040 or 1040EZ. Most of her tax return is the same as it is for any other individual. However, if you are claiming her as a dependent, you get to claim her as a personal exemption on your tax return. Because of that, she can't claim a personal exemption for herself on her own tax return. Her standard deduction will also be slightly lower.
The Kiddie Tax
If your daughter earned a substantial amount of unearned income, you may be subject to the so-called kiddie tax. If your daughter has less than $2,000 in unearned income, the income is taxed at her tax rate. Generally speaking, that will be pretty low. However, if a dependent has unearned income over $2,000, the IRS taxes the income at the parent's highest tax rate. That means that if you're in the 25 percent tax bracket, all of her income will be taxed at 25 percent.