Finance Questions

Posts Tagged ‘dependent child’

When is a dependent child required to file a federal income tax return?

A dependent child must file a tax return if any one of the following applies: 

• Unearned income was more than $850 (for 2006) or
• Earned income was more than $5,150 ($4,850 previously) or
• Gross income (total unearned and earned income) was more than the larger of:
  1. $850 ( for 2006) or
  2. Earned income was more than $5,150 ($4,850 previously) plus $300.

A dependent child that has gross income (unearned plus earned income) of $850 (for 2006) or less will not be taxed on that amount and does not have to file a tax return.

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Who is responsible for filing the dependent child ’s tax return and paying the tax?

If a dependent child cannot file his or her own return for any reason, such as age, the child’s parent or guardian is responsible for filing a return on his or her behalf. If the child does not pay the tax due on this income, the parent may be liable for the tax.
A parent may take money out of the child’s UGMA / UTMA to pay the child’s tax liability. If the parent pays the tax out of the parent’s assets, the payment is considered an additional gift to the child.

How is a dependent child ’s income taxed?

Dependent children age 14 and over are taxed at the rates for Single taxpayers. 
Standard Deduction: A dependent child is entitled to a standard deduction of: 

The higher of: 

• $850 (for 2006) or,
• $300 plus earned income (wages, salary, tips, etc.) up to a maximum of $5,150.

Income in excess of the applicable standard deduction is subject to tax. A dependent child is not entitled to a personal exemption. 
Child age 14 or over (Kiddie Tax does not apply): 
All income in excess of the standard deduction is taxed at the child’s tax rate (single taxpayer). 
Child under age 14:

Type of Income	Amount of Income	Tax Rate
Unearned income only	First $850 (standard deduction)	No tax
	$850 – $1,700	Child’s tax rate
	Over $1,700	Parent’s marginal tax rate
Earned income only	$5,150 or less (standard deduction)	No tax
	Over $5,150	Child’s tax rate
Both earned and unearned income*	First $850 (standard deduction)	No tax
	Excess over standard deduction
	· Unearned income of $1,700 or less	Child’s tax rate
	· Unearned income over $1,700	Parent’s marginal tax rate
	· Earned income	Child’s tax rate

Note: If the dependent child ’s gross income is below the standard deduction there is no tax due and no federal income tax return is required to be filed.