How to file a tax return for your kids when they make money in 2019?

It is summer time, and that means many kids are working summer jobs. The good news is your kids are making money, and the bad news is your kids are now liable for taxes. Whether your child worked only during the summer or worked all year, there is a high possibility your child will need to file a tax return. Generally speaking, children file as dependents. A dependent filing a tax return faces unique tax implications and rules; therefore, in order to properly file taxes for your kids, you must understand the tax implications faced by dependents. I have all the answers relating to your kid's tax return below!

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Why & Apply

To begin, I like to start my posts off by introducing the topic and discussing those who may benefit from the information provided.

So, why discuss tax implications and requirements specific to children and dependents? Well, as a dependent child, you face different tax rules and requirements. For example, dependents have a different standard deduction. Additionally, dependents face tax implications relating to earned and unearned income. If you are filing taxes for your child and/or dependent, it is crucial to understand the tax rules relating to your child's tax return in order to properly file your kid's tax return and maximize the tax-related breaks. I plan to answer all questions relating to the tax implications when your kids earn money. Additionally, I will discuss and provide examples concerning dependent-related tax breaks and deductions.

The post will discuss and answer the following topics relating to filing tax returns for your kids when they make money:

• What are the filing requirements for dependents?
• How to calculate your kid's standard deduction amount?
• Who is responsible for your child's tax return?

Lets begin!

The Filing Requirements for a Dependent Child

Does my dependent child need to file a tax return?

The answer is maybe! The amount of the dependent child's earned and unearned income determines whether or not the child needs to file a tax return.

Earned Income versus Unearned Income

Earned Income includes the wages, salaries, fees, and commissions earned from doing actual work. The earned income may be earned via employment, self-employment, and more. Basically, if you do actual work to earn the income, then the income qualifies as earned income.

Unearned Income includes dividends, interests, capital gains, and trust distributions. Basically, unearned income is income that results from not doing any direct work. Broadly put, unearned income tends to derive from financial investments.

A proper understanding of the differences in income types helps to determine the filing requirements for a dependent child. Therefore, when the child makes money, sort the income into unearned and earned amount categories.

Income Guidelines for Filing

In 2019, a dependent child making money needs to file a tax return in the following situations:

-- The kid has unearned income of more than $1,100

-- The kid has earned income of more than $12,200

-- The kid has gross income (unearned income & earned income) that exceeds the greater of: $1,100, or earned income (up to $11,850) + $350

Calculate the Dependent Child's Standard Deduction

The income amounts above reflect the current 2019 standard deduction for dependents. The amounts are subject to changes in following years. In 2019, the dependent standard deduction is equal to the greater of: (i) $1,100 or (ii) earned income + $350 (up to $12,200, which is the standard deduction for a single taxpayer).

It is important to note that even if your child is not required to file a tax return based on his or her income levels, it still may serve beneficial to file a Form 1040 tax return if income tax was withheld from the child's paycheck. Therefore, by filing a tax return, the dependent child can receive a tax refund (YAY!).

Examples

Unearned Income Only

The child is 17 years old and can be claimed as a dependent on her parent's tax return. The child received $2,000 of taxable interest and dividends during the year. She had no other income during the year.

The child must file a tax return because she has gross income (all unearned) above the 2019 standard deduction amount of $1,100.

Earned Income Only

The child is 19 years old and attending college. He can be claimed as a dependent on his parents tax return. The child worked part-time during the year, earning $15,000. He had no other income during the year. 

The child must file a tax return because his gross income (all earned) exceeds his standard deduction. In this case, the child's 2019 standard deduction is $12,200, which is the standard deduction amount for a single taxpayer. The earned income plus $350 does not apply because that standard deduction calculation cannot exceed the standard deduction amount of $12,200. 

Unearned & Earned Income

The child is 18 years old and claimed as a dependent on her parent's tax return. During the year, she received $500 of taxable interest and dividends. Additionally, she earned $2,000 working a summer job. 

The child must file a tax return because her gross income exceeds that of the standard deduction for a dependent. The child's gross income is $2,500. Per the dependent standard deduction definition, she may deduct $2,350 from gross income ($2,000+$350). The child must pay tax on the difference between her gross income and the standard deduction. 

Responsibility for the Child's Tax Return

Who is ultimately responsible for filing the dependent child's tax return?

Basically, the child holds the responsibility for filing the Form 1040 tax return each year. Because of this, the dependent child is also responsible for paying the actual tax and paying any interest and penalties relating to the return. 

If, for whatever reason (most likely age), the dependent child cannot file his or her own tax return, a parent, guardian, or responsible third party may file the tax return on behalf of the child. If any person other than the child signs the tax return, then that person (parent, guardian, other) must sign the dependent's name followed by: ["By signature, parent (guardian) for minor child"]. By signing the return, the parent gains the ability to deal with the IRS with matters concerning the child's tax return. If not, the parent may only provide information to the IRS concerning a matter related to the child's tax return. 

Now you know!

Now you know when and how to file a tax return for your dependent kids! In recap, a child holds the responsibility to file his or her own tax return; however, it is common and allowed for the parent to complete and sign the tax return on behalf of the dependent child. Additionally, the dependent child must file if his or her income levels are above the standard deduction amounts related to the dependent. These amounts vary based on unearned and earned income. Lastly, if the child is eligible for a tax refund, remember to file the tax return in order to receive the refund.

For any and all questions and concerns, please comment below! Also, please share the post with friends and family who may benefit from learning how and when to file a tax return for their dependent children!