When I became a parent, it was my job to set the rules of our home. But now that my kids are getting older, the IRS has given me a bunch of rules to follow in regards to my kids! Because these rules are based on their age, their income, and whether they go to school or not, I decided to do my best to simplify these rules imposed on us parents. Hope you find this helpful!
Claiming Child as a Dependent:
In order for the parents to claim a “child” on their return, they must meet the following requirements:
The kids are:
- 1. Under age 19 or
- 2. A full-time student under age 24 or
- 3. Any age if totally and permanently disabled
There are also three other basic tests that apply as to whether the parents can claim the child as a dependent:
- 1. Child’s parents are not someone else’s dependent
- 2. Child is not filing a joint return with another person (with an exception if only filing to claim a refund of tax withheld and neither spouse is required to file), and
- 3. Child must be a US citizen or national or a resident alien, or a resident of Canada or Mexico.
The next question that must be answered is whether your child must file a tax return.
If the child is single, under age 65 and not blind, a 2016 return is required if:
- 1. Unearned income (such as interest, dividends, capital gains or other investment or passive income) is greater than $1,050 or
- 2. Earned income (example: W-2 wages) is greater than $6,300 or
- 3. Gross income (unearned income plus earned income) is more than the larger of $1050, or earned income (up to $5950) plus $350
When the child is over age 24, even if they are a full-time student, they can only be a dependent on their parent’s tax return if their gross income is less than $4,050 in 2016.
Kids who have unearned income (Kiddie Tax):
Children who have unearned (typically investment) income greater than $ 2,100 may be subject to tax based on their parents’ income (the so-called “kiddie tax”.) Children are subject to the Kiddie Tax Rules if the child is:
- 1. Under 18 or
- 2. Age 18 and the child’s earned income is less than or equal to 50% of their support or
3. Ages 19-23 if they are a full-time student and earned income is less than or equal to 50% of their support.
A child’s unearned income is taxed two ways. First, it is reduced by a standard deduction of $1050. The next $1,050 of income is taxed at the child’s rate, then the remainder is taxed at the parents’ rate. This is calculated on a tax form 8615.
A parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. To make this election, the parents file a form 8814. Parents can only make this election if the child’s interest and dividend income was less than $10,500 for the tax year along with a few other rules (consult your tax preparer for the complete list). The child is required to file a return unless the parent makes this election.
If the child has any W-2 earnings, 1099-MISC earnings, or stock sales, income cannot be reported on the parent’s tax return and the child must file their own return if required and may be subject to the Kiddie Tax.