If you claim your child as a dependent on your tax return and your child has income such as wages from a part-time job, you don’t have to include your child’s income on your own return. Your child may have to file a return if his or her income is over the amount for which a return must be filed.
If you can claim your child as a dependent, your child must file a tax return if he or she had unearned income over $950, earned income over $5,950, or if gross income is more than the larger of $950 or earned income up to $5,650 plus $300. Also, if your child worked as an independent contractor or was self-employed, he or she would have to file a return if net earnings were more than $400.
If your child received wages and income taxes were withheld, it may be advantageous for your child to file a return, even if not required, in order to claim a refund of the taxes withheld. Also, if your child had earned income, he or she may qualify for the earned income credit, which is a refundable credit.
If you claim your child as a dependent and your child files a tax return, your child could not claim his or her own exemption.
If your child is required to file a return but cannot for any reason, you as the parent are responsible for filing the return.
If your child was under age 19 or was a full-time student under age 24 and his or her only income is interest, dividends and capital gain distributions you can elect to include your child’s income in your own return instead of filing a separate return for your child. To do this, you would file Form 8814, Parents’ Election To Report Child’s Interest and Dividends, with your return. But, you may pay less tax overall if you file a separate return for the child.
If your child’s income includes qualified dividends or capital gain distributions, the income from $950 to $1,900 is taxed at a rate of 10% if you include it on your return. But due to preferential rates on this income, it may be taxed at a rate of 0% on your child’s return.
When your child has unearned income over a certain amount ($1,900 in effect as of 2012), the “kiddie tax” rules apply and a portion of your child’s unearned income may be subject to tax at your tax rate. In this case, Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, would have to be completed and filed with your child’s tax return.
Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,900, IRS
Form 8814, Parents’ Election To Report Child’s Interest and Dividends, IRS
Publication 929, Tax Rules for Children and Dependents, IRS