You are able to claim your child as a dependent on your income tax return because you provide for their support but they have earned their own money – do they need to file a return? First you need to ensure you are able to claim your child as a dependent by answering a few simple questions:
- Did your child reside with you for more than half the year?
- Did you provide for more than half of their support?
- Were they under the age of 19 for the entire year or under 24 if they are a full-time student?
If you are able to answer yes to all of the above questions, you are entitled to claim your child as a dependent. These tax rules even apply if your child is a student who does not live with you because they reside at an educational facility.
For dependent children the Internal Revenue Service (IRS) treats your child’s income differently based on whether they earned their money due to working or through any investments they might have. Dependent children who earn more than $5,950 (for 2012) of earned income need to file an income tax return and might owe tax to the IRS. Earned income is defined as income they received by providing services to an employer, even if it is only occasionally through a part-time job. If your child earns less than this amount they still might want to file if their employer withheld any federal income tax. Chances are under these circumstances they would have a refund coming and the only way to receive the money back is to file an income tax return.
If however, the money your child earns is from interest or dividends resulting from their investments they will need to file an income tax return if this income is $950 or more. You, as the parent, do have the option of including your child’s unearned income with your income tax return on Form 8814.
If you determine your child does need to file an income tax return, it is his or her responsibility if your child is capable but if not it is your responsibility to file for them. If you do prepare your child’s return because they are too young, you must also sign the return along with the notation that you are signing as the parent or guardian. The plus for having to sign for your child is it allows you to discuss your child’s return with the IRS if necessary.
If your child is required to file an income tax return, the preparation would provide an excellent opportunity for you to teach financial responsibility and the importance of keeping accurate financial records. Learning financial responsibility at an early age will assist your child in becoming successful in all future endeavors!!
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