The Social Security Administration pays monthly benefits to more than 4 million children who qualify through a disability determination or through a parent's benefits. These benefits are income, according to the Internal Revenue Service, which means they might be taxable. You have to look at the child's entire income, from Social Security benefits and other sources, to figure out if taxes are owed. If the child is not receiving other income, there's probably nothing to pay.
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Social Security Benefits for Children
A child may receive Social Security benefits if a parent is retired or disabled and receives Social Security benefits, or if a parent dies and that parent has paid enough in Social Security taxes to qualify for benefits. The child qualifies if he is single, younger than 18, or 18 to 19 and attending school up to the 12th grade as a full-time student. A disabled child aged 18 or older can receive benefits if his disability began prior to age 22. A disabled child might also be eligible for benefits under Supplemental Security Income, which is not a Social Security benefit, if her parents have low income and few resources. However, Supplemental Security Income is not taxable. You can ignore SSI when calculating your child's taxes.
When Benefits are Taxable
A child who receives only Social Security benefits and no other income probably won't owe taxes on the benefits. You don't include the parent's Social Security benefits when calculating the child's income unless those benefits are expressly intended for the child. The child's benefits might be taxable if other income, such as employment or interest income, increases the child's total income. The child will receive Form SSA-1099 showing the total Social Security income received for the tax year. He should also receive other reporting forms for the tax year if he received additional income.
The child's Social Security benefits are taxable if her income exceeds a certain amount. Here's the math: combine one-half of the child's Social Security income with the other income received to determine the modified adjusted gross income. Next, compare the MAGI with the base amount for the child's filing status. For instance, the base amount for a child who is single is $25,000. If the child's MAGI exceeds that amount, the benefits are taxable. The tax return form and IRS Publication 915 contain the rules for calculating the MAGI when the filing status is married, the couple file a joint return and only one of them receives Social Security benefits.
Filing a Tax Return
If the child's Social Security benefits are taxable, use Form 1040 or 1040A to file taxes — not Form 1040EZ. Use the worksheet included in the tax return form, or in IRS Publication 915, to calculate the taxable amount of Social Security benefits. Even if the Social Security benefits are not taxable, the IRS might require the child to file a tax return if he received other income.