Is Your Child Required to File a Tax Return?

As kids get older, it is inevitable that they will want more money to buy things like clothes, music, a new car, etc.  Many kids will get a job or even start their own business to meet their demand for more "stuff".

While most kids don't earn enough money to be concerned about filing a tax return, some will have to file based on the type and amount of income they earn.  How do you know when your child is required to file a tax return?

In general, kids who are dependents (claimed on someone else's tax return) need to file a tax return if:

- they have earned income of $5,700 or higher (this is the standard deduction amount for 2009, the amount for 2008 was $5,450)
- they have unearned income (investment income) of $950 in 2009 ($900 in 2008)
- they have gross income (both earned and unearned) in excess of the larger of $950 or their earned income plus $300.

Children usually file their own tax return because they earned enough income from a job to be required to file, or because they have investment income in excess of the allowable limits. 

However, some kids may also need to file a tax return, including:

- those who have earned income and who received advanced earned income credit payments from his or her employer,
- kids who had wages of $108.28 or more from a church, that is exempt from employer Social Security and Medicare taxes, or
- kids who had net earnings from self employment or their own business of at least $400.

Sarah is 15 and is claimed as a dependent on her parents' tax return. In 2008, her only income was $250 she earned from making jewelry and selling it to her family and friends. In 2008, she is not required to file a tax return.

However, let's assume that word about her jewelry spread and in 2009 she doubled her income. Assuming her net earnings (after expenses) from her jewelry business was $500, she would be required to file a 2009 income tax return.

Children who only have unearned income (from investments, for example) can either file their own tax return or their parents can claim the income on their tax return.

If the child is required to file because she has earned income from an employer, or if she has a business of her own, then she will need to file her own tax return.  In addition, children with their own businesses will need to complete Schedule C - Profit or Loss From Business and Schedule SE - Self Employment Tax and attach these to their income tax return.