The Internal Revenue Service doesn't always make children pay personal income taxes or file tax returns. If a child only receives a small amount amount of income during the year, she doesn't have to file a tax return. However, if a child has over $1,050 in unearned income or $6,300 in earned income, she must file a return and possibly write a check to the IRS.
Interest and Dividends
A dependent child must file a tax return if her unearned income - for example, interest and dividends - is more than $1,050. Social Security and Medicare taxes aren't levied on unearned income and income tax isn't usually withheld from payments. That means a child won't have to pay tax on interest and dividend income as long as the total doesn't exceed $1,050 and she didn't earn income from a job.
Wages From a Job
Tax considerations are a little different for children with jobs. Employers are required to withhold Medicare and Social Security tax from an employee's wages. Currently, the employee portion of these taxes is 7.65 percent of gross wages. Normally, employers are required to withhold a portion of state and federal income tax as well. However, a child can elect to not have any income tax withheld when she files Form W-4. Per the form instructions, a dependent child only can claim an exemption from withholding if her annual income is less than $1,050 and she doesn't plan to have more than $350 in unearned income.
The earned income limit for tax filing is lower than it is for unearned income. A dependent child needs to file if her earned income exceeds the standard deduction for the year. That means a child has to file a tax return if she earns wages in excess of $6,300 for the 2015 tax year.
Both Earned and Unearned Income
Children that have a mix of earned and unearned income have a different set of income limits. A child must file a return if any of these situations apply:
- Unearned income exceeded $1,050
- Earned income exceeded $6,300
- Combined income exceeds the larger of $1,050 or earned income - up to $6,300 - plus $350.
For example, say a child earns earns $1,000 from interest payments and $400 from a job. Because $1,400 exceeds $1,050, she must file a tax return.
If a child had income tax withheld from wages, it usually makes sense to file anyway even if she's not required to. Most likely, her taxable income and tax rate will be low enough to earn her a refund. It's also a good opportunity to teach a child about the ins and outs of preparing tax returns.