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2014 8 Sep
  • Posted by DasBrooks
  • in Strategy
  • Comments Off on Kids Paying Taxes

I had no idea that children under 18 were subject to taxes in certain situations. I guess it’s been so long since I was a kid that I just remember working and getting money back at the end of the year. But there are a number of situations in which nonworking young people are also subject to tax:

 

Unearned income: this includes taxable interest, ordinary dividends, capital gains, rents, royalties, taxable Social Security benefits (which started me down this rabbit hole), pension and annuity income, taxable scholarship and fellowships not reported on a W-2, unemployment compensation, alimony, and income received as the beneficiary of a trust. (Alimony?!?!?!)

 

Earned income: wages, tips, and other payments for personal services performed, taxable distributions from a qualified disability trust.

 

More:

  • Child’s unearned income is more than $2,000
  • At least one of the child’s parents is alive at the end of the tax year
  • The child is required to file a tax return for earned income
  • The child meets one of the following age requirements:
  1. Under Age 18
  2. Age 18 and parents provided more than half the child’s support during the year (food, clothing, education, lodging, medical, dental, recreation, transportation, and other necessities.
  3. Age 19-23 and a full-time student

 

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, but there are specific rules that must be met to qualify for this. As always, check with your tax professional in each unique situation.

 

–Misty, for Das-Brooks

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