As an adult, you know it’s a given that you have no choice but to pay taxes. But what about your children? Is paying taxes a requirement for them, too, or are they exempt?
According to leading tax audit defense firm TaxAudit, children could very well be required to pay taxes in certain circumstances.
If a child earns income, then he or she can expect to have to pay taxes on that income. Two types of income that children — or any taxpayer, for that matter — could earn might have to be reported and taxed. One type is earned income. Meanwhile, the second type is unearned income.
Earned income refers to any money your child makes from working as an independent contractor or providing a service or good, for example. On the contrary, unearned income refers to any income that your child receives outside of a trade or business. For example, it could include ordinary dividends or interest.
If your child has either income type, and if the amount surpasses specific Internal Revenue Service thresholds, then this income must be reported. Note that the filing requirements might change each year, so you should review them each tax season to see if your child’s income needs to be reported when you claim him or her on your tax return.
For instance, in 2018, a child had to report his or her income if he or she had unearned income over $1,050. However, this number jumped to $1,100 in 2019.
In addition, a child who earned over $12,000 in 2018 was required to file his or her own return. This number became $12,200 in 2019.
A tax professional can walk you through these guidelines each year to make sure that you and your child comply with the tax law and protect your financial best interests in the process.