How much can a dependent child earn? Learn the rules about when a child must file a tax return because of earned and unearned income.
Say your dependent child is earning money from working, investments, or both. Great, but beware—your child might have to file a tax return. It might seem odd, but the IRS says dependent children who earn more than a threshold amount must file returns.
If a child fails to file, you (the parent) might be liable for the tax. Moreover, if your child can't file a return for any reason, such as age, you're legally responsible for filing one on your child's behalf.
For all these reasons it's vitally important to know how much your dependent child can earn before a tax return has to be filed. But how much can a dependent child earn? Read on to find out.
Types of Income for Dependents
Whether your child is required to file a tax return depends on the applicable standard deduction and how much earned and unearned income the child had during the year.
What Is Earned Income?
"Earned income" is income a child earns from working. It includes salary or wages, tips, professional fees, and taxable scholarship and fellowship grants.
What Is Unearned Income?
"Unearned income" is investment-type income. It includes taxable interest, dividends, capital gains, unemployment compensation, Social Security benefits, annuities, and distributions of unearned income from a trust.
If Your Child Has Earned Income Only
A child who has only earned income must file a return only if the total is more than the standard deduction for the year. Your child will have to pay tax on the salary only to the extent it exceeds the standard deduction amount for the year: $13,850 in 2023 ($14,600 for 2024).
Example: William, a 16-year-old dependent child, worked part-time on weekends during the school year and full-time during the summer. He earned $16,000 in wages during 2023. He didn't have any unearned income. He must file a tax return because he has earned income only, and his total income is more than the standard deduction amount for 2023.
If Your Child Has Unearned Income Only
A child who has only unearned income must file a return if the total is more than $1,250 for 2023 ($1,300 for 2024).
Example: Sadie, an 18-year-old dependent child, received $1,900 of taxable interest and dividend income during 2023. She didn't work during the year. She must file a tax return because she has unearned income only, and her total income is more than the unearned income threshold for 2023.
However, if your child's interest and dividend income (including capital gain distributions) total less than $12,500 for 2023 ($13,000 for 2024), you can elect to include that income on your (the parents') return rather than file a return for the child. In this event, all income over $2,500 for 2023 ($2,600 in 2024) is taxed at your tax rates—you could end up paying more with this method.
If Your Child Has Both Earned and Unearned Income
If a child has both earned and unearned income, that child must file a return for 2023 if:
- unearned income is over $1,250
- earned income is over $13,850, or
- earned and unearned income together totals more than the larger of (1) $1,250 or (2) total earned income (up to $13,450) plus $400.
Example: Mike, a 19-year-old college student claimed as a dependent by his parents, received $200 taxable interest income (unearned income) and earned $2,800 from a part-time job during 2023 (earned income). He doesn't have to file a tax return. Both his earned and unearned income are below the thresholds, and his total income of $3,000 is less than his total earned income plus $400 ($3,200).
Should Your Child File a Return Even If Not Required?
Even if your child doesn't meet any of the filing requirements discussed, that child should file a tax return if:
(1) income tax was withheld from that child's income, or
(2) that child qualifies for the earned income credit, additional child tax credit, health coverage tax credit, refundable credit for prior year minimum tax, first-time home buyer credit, adoption credit, or refundable American opportunity education credit.
See the tax return instructions to find out who qualifies for these credits. By filing a return, your child can get a refund.
What Is Your Child's Income Tax Rate?
The first $1,250 (2023) of unearned income is covered by the kiddie tax standard deduction, so it isn't taxed. The next $1,250 (2023) in unearned income is taxed at the child's tax rate, which is ordinarily lower than the parent's. Income over $2,500 (2023) is taxed at the parent's maximum income tax rate.
Figuring the kiddie tax can be complex. For example, if a parent has more than one child subject to the kiddie tax, the net unearned income of all the children has to be combined, and a single kiddie tax calculated.
For federal income tax purposes, the income a child receives for personal services (labor) is the child's, even if, under state law, the parent is entitled to and receives that income. So, dependent children pay income tax on their earned income at their own individual tax rates.
