When does my kid need to file a tax return?

Photo: picjumbo.com/Viktor Hanacek

 Q. When do I have to file tax returns for my kids? They’re not old enough to work yet, but they have some income from investments.

A. It’s nice to hear your child’s investments are earning money.

If you’re not sure about whether or not your child needs to file a return, you should check with a tax preparer who knows your family’s specific situation.

But in general, here’s some guidance.

“If a child had income tax withheld on a W-2 or 1099 form, he or she should file an income tax return in order to claim their refund,” said Bernie Kiely, a certified financial planner and certified public accountant with Kiely Capital Management in Morristown. “I recommend this even if they would otherwise not have to file a return.”

Kiely said new tax rules for dependents make a distinction on the type of income the dependent has. There’s earned income, such as salary, wages or self-employment income, and then there’s unearned income, which includes interest, dividends and capital gains.

“A child must file an income tax return if their income was more than the larger of $1,000 or earned income of $6,100,” he said. “If your child had no unearned income, but earned $3,000 from a job, they don’t have to file. If they had $3,000 in interest and dividends, then they do have to file.”

Additionally, Kiely said, if the child’s unearned income was more than $2,000, part of that income may be taxed at the parent’s tax rate instead of the child’s tax rate. If the child had $400 or more of net self-employment income, they will have to file to pay self-employment tax, he said.

Yes, the good old “kiddie tax.”

“The `kiddie tax’ starts to apply to your children when they each have more than $2,000 of investment income and are under age 18 before the end of the tax year or the child is a full-time student age 19 to 23,” said Gail Rosen, a Martinsville-based certified public accountant. “Essentially, these rules tax your child’s investment income above the $2,000 at the parents’ higher tax rate.”

She said if your child does have taxable income over $2,000, you must complete Form 8615 with your tax return.

The first $1,000 of investment income your child earns is not taxable. The next $1,000 is taxed at your child’s tax rate, and the remainder is taxed at the parents’ tax rate, Rosen said.

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This story was first posted in November 2014.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.