Finance Questions

Posts Tagged ‘income tax’

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.

There is income tax for children. Children with income may need to file income tax. Calculating income tax for children is different from calculating income tax for adults and parents. When filing income tax for children, child tax rates apply for income under a certain amount specified by the IRS. Above that threshold, income tax for children is charged at their parents’ tax level. The same income tax rule for children apply when the children are 14 or under.

IRS tax publication 929 outlines tax rules for dependents including income tax for children.

• Kiddie Tax
• Kiddie Tax Reporting
• Dependent Child’s Income Tax
• Dependent Child Tax
• Taxes on Child’s Capital Loss
• UGMA UTMA
• How are UGMA Account Withdrawals Taxed?