Everyone who makes an income must pay tax on that income, no matter what their age, and that includes children. Although, children who are dependents only have to pay federal income taxes if they earn a certain amount.
IRS tax law says that children or dependents are required to file and pay a tax return if they earn more than a certain amount. Your child can earn money from babysitting, which has no minimum age limit except for in Maryland, where the requirement is 13 years. If your child earned a certain amount from competitions like a gaming tournament, sporting event or singing competition, they must file a tax return then, too.
Helping your children file their first income tax return is usually the only way they will learn this essential task in life, as it's not a part of the curriculum in most schools. This could be considered a failure of the education system because many first-time taxpayers have serious problems understanding IRS rules and regulations, which can lead to financial difficulties such as penalties in the future.
With all of this in mind, an understanding of when to pay taxes on your child’s income and the process of claiming them as a dependent can be beneficial for both you and your children.
A dependent is someone who relies on your income for day-to-day expenses like food, housing, travel and necessities like clothing. The IRS has a list of qualifications for a child to be considered a dependent.
If you have a child who satisfies the above tests from the IRS, then you can claim them as a dependent and claim certain tax credits and deductions! The IRS wants to ensure that you are paying the tax amount indicated by the income tax brackets they determine.
If your dependent is making an income of its own, it can be considered part of your income. Claiming a dependent on taxes is almost always a good idea because you can involve your children in the activity and give them a valuable rundown of how the tax system works.
You can claim several relatives as defined in the relationships above, and you can claim their descendants such as a grandchild, a nephew or a niece.
Naturally, the IRS allows you to claim an adopted child as a dependent if they satisfy the requirements.
The IRS always encourages you to file a tax return, even if you don’t owe any taxes because it benefits them to have as much information about a potential taxpayer as possible. For example, when you file taxes for a dependent child or claim a child tax credit, you have to provide information like the Social Security Number (SSN) of the dependent, which helps the IRS identify a taxpayer.
There are a lot of tax benefits when you declare dependents. These benefits come in the form of education tax credit and dependent care credit. These tax credits directly lower your tax amount and you also get a refund if your credit amount is more than your tax amount.
For a dependent to pay taxes separately from their parent or guardian, they must earn at least $12,550 throughout the tax year. For a child to be considered a dependent, their gross income must be less than $4,300 throughout the year.
Let’s say your child has occasional acting jobs in television commercials, and her income was more than $12,550 last year. Your child would have to file their own tax return and pay taxes on that income if they owe any after deductions. If she was working for a film production house, her taxes would be directly withheld from her income by that company.
Filing taxes as a dependent is a good exercise for your child because, sooner or later, they’ll have to do their taxes on their own. To help make the tax filing process easier, you can use cutting-edge tax tools like FlyFin. It uses A.I. to automatically find all your tax deductions and provide you with 24/7 tax CPA support.
FlyFin CPA Team
With a combined 150 years of experience, FlyFin's CPA tax team includes tax CPAs, IRS Enrolled Agents and other tax professionals, offering users the most comprehensive tax advice and preparation.