Filing income taxes can be difficult enough with the constant changes to IRS rules. The situation becomes significantly more difficult when a teen and their income are involved. You’ll need to have a variety of information at your fingertips. The IRS sets dollar amount limits and whether or not your teen will have to file a tax return will depend on their total income was from all sources.
Unlike adults, there’s more flexibility when a child is filing, but that can also make it more complicated. If your child has income above the level set by the IRS, he/she won’t need to file. However, when a child has both earned and unearned income, the two will have to be added together to determine their filing status.
You can claim your child if you provide more than 50 percent of their financial support, they live with you more than half the year, and they’re under the age of 19 during the entire year. You can claim them up to the age of 24 if they’re a full-time student, even if they live outside your home due to their education.
Wages and Salary
The type of income your child has will also affect their filing status. Dependent children that have earned income of more than $12,400 (as of 2020) through wages and salaries must file. They may also owe income taxes. A child’s standard deduction can’t exceed the larger of $1,100 or their earned income plus $350. The maximum is $12,400.
A child’s investment income is treated differently. It’s considered unearned income when acquired through dividend or interest payments, for example. If all the child’s money was unearned income, you can include it on your return and combine it with your income. However, doing so has the potential of elevating you to a higher tax bracket.
At Peavy and Associates PC our mission is to assist you with all your tax preparations, payroll and accounting needs. We provide our clients with professional, personalized accounting services and guidance in a wide range of financial and business needs. Give us a call today and discover why our clients return to Peavy and Associates, PC year after year!