As a parent, you expect to file a federal income tax return every year. But do you check to see if your children need to file a return of their own? The filing requirements for children vary depending not only on the amount of income they have, but also on whether their income comes from working, investing, or both.

    If your child had wage income only during 2014, a tax return is required if wages exceeded $6,200. If the child earned less than $6,200 but employers withheld taxes, a tax return must be filed if a refund is to be claimed.

    If your child had net self-employment earnings of $400 or more in 2014, a return is required and a self-employment tax is due. Income tax could be due if earnings exceeded $6,200.

    If a child had investment income only during 2014 (such as dividends and interest), reporting is required if the total exceeded $1,000.

    If your child has both earned and unearned investment income, a return is required if the total was more than the larger of $1,000 or earnings plus $350 (up to $6,200).

    If your child’s investment income for 2014 exceeded $2,000 and your child is under age 19 (age 24 if the child is a full-time student), the amount over $2,000 will be taxed at your top rate. You may elect to include your child’s unearned income on your tax return in certain circumstances, rather than filing a separate return for the child.

    Be aware that a working child can make contributions to an individual retirement account, either a regular IRA or a Roth IRA. A contribution to a regular IRA will be tax-deductible, reducing the tax if your child owes any. A contribution to a Roth IRA won’t be deductible so it won’t lower a child’s tax bill, but the offsetting benefit of tax-free withdrawals later on may still make it a wiser choice. Contributions to 2014 IRAs may be made any time up to April 15, 2015, the filing deadline for 2014 tax returns.

 

    David Compton is a Certified Public Accountant with offices in Meridian and Birmingham, Ala.