Your childs first paycheck is here! But what does it mean for taxes? Do they need to file? How much should they expect to pay? Let’s dive into the details.
In today’s post, I will walk you through everything you need to know about the requirements for kids to file and pay income taxes.
Does my kid need to file federal income taxes?
The federal income tax filing requirement for kids depends on two main factors: income type and amount. The IRS sets a minimum threshold each year for both earned and unearned income. Typically, if your child earns more than that threshold, then they’ll need to file a tax return.
However, there are situations where a child who doesn’t meet the minimum earning threshold should still file a personal income tax return. For instance, if your child had taxes withheld from a paycheck, they may need to file in order to get a refund. Or if they’re self-employed and make more than a certain amount, they’ll need to file. I’ll explain more about these situations in a minute.
What is the IRS minimum threshold for filing federal income taxes?
This chart shows the IRS’ minimum threshold amounts for tax years 2023 and 2024. By the way, the earned income threshold amount is the same as the standard deduction amount for the tax year.
| Does My Child Need to Pay Income Taxes? | ||
|---|---|---|
| Tax Year 2023 | Tax Year 2023 | |
| Unearned Income Threshold | $1,250 | $1,300 |
| Earned Income Threshold | $13,850 | $14,600 |
| Self-Employed Income Threshold | $400 | $400 |
One note here is that technically, these thresholds apply to any dependent child younger than 65 who isn’t blind and is unmarried. If you have a dependent who is blind, older than 65, or married, you should check the IRS publications for specific threshold amounts for those dependents.
The last bit to remember on the threshold topic is that if your child’s income comes from a combo of both earned and unearned sources, things can get more complicated. In this case, the threshold for filing is either the unearned income threshold amount or the total income that exceeds the larger of the unearned income threshold amount or earned income threshold amount plus $400. I know that’s a mouthful, but welcome to the tax code! I will say that most parents don’t have to deal with this unless their kids are making bank on their investments or are working a lot.
What’s the difference between earned and unearned income?
Simply put, earned income is money from jobs. This includes hourly wages, salary, tips, or money from self-employment. In other words, if your child has a part-time or full-time job at a retail store, mowing lawns, babysitting, or something similar, then they will file taxes if they meet the minimum threshold amount for earned income that is set by the IRS.
On the other hand, unearned income is money that comes from something other than employment. For kids, this could be interest from savings accounts, dividend payments from stocks, capital gains from investments, Social Security payments, or distributions from certain types of trusts.
However, if your child’s unearned income comes only from interest and dividends, then you can choose to combine it with your own income on your personal tax return by completing and attaching IRS Form 8814. The only thing to watch out for here is that if their income pushes you into a higher tax bracket, you may want to have your child file a separate return instead. If you’re unsure which route to go, ask an accountant to help you run the numbers.
If my kid is self-employed, do they need to file or pay income taxes?
A growing number of kids are earning income through what used to be called “gig work.” This type of work includes entrepreneurial ventures like pet-sitting or selling crafts online. If your child earns more than $400 from self-employment, including side jobs or through their own small business, then they’ll need to file a tax return even if their total income doesn’t meet the IRS’ minimum threshold.
As for paying income taxes on their self-employment income, kids won’t need to pay income tax unless they make more than the standard deduction amount for the year. However, they will need to pay self-employment tax, which means they will pay both the employee and employer portion of Social Security and Medicare taxes.
Does my kid need to file state income taxes?
Just when you think you’ve got federal taxes figured out, it’s time to think about state taxes, which can vary widely. While each state typically adopts the federal income threshold requirements, some states can and do adopt different amounts.
In some states, your child may need to file a state tax return even if they don’t need to file a federal return. To be sure, you’ll need to check with your state’s tax authority or speak to an accountant.
Should my kid file an income tax return even if they don’t have to?
Even if your child doesn’t hit the income thresholds set by the federal or state tax authorities, there are times when it’s still worth it for them to file a return. The most common reason is to get a refund. This is because if your child worked and had taxes withheld from their paycheck, filing a return is the only way to claim that money back.
A lot of teens’ first jobs don’t pay enough to owe income tax, but they may still see tax withholding on their pay stubs. For this reason, filing can get that withholding back, which is everybody’s favorite part of filing taxes!
Abridged by Amy
Whether your kid needs to file a tax return depends on their income, the type of income they earn, and where you live. For most kids, if they have a job earning less than the standard deduction, they won’t need to file unless they want a refund. However, unearned income from investments or self-employment income can trigger filing requirements even if their total income amount is low.
If you’re unsure whether your child should file, talk to an accountant who can understand your child’s specific situation. Involving your kid in the conversation is a great way to introduce them to the lifelong curse (kidding!) of paying taxes.
Looking for information about hiring your child to work for your business? I’ve written a whole series that outlines every step you need to take to do this, including the tax advantages of making it happen! You can get started by reading my first post in the series: Should I Hire My Child to Work for My Business?
