Could Your Child Owe Taxes? Here's What To Know
We generally assume that children aren’t required to pay taxes. But if your child has unearned income — such as interest and dividends from investments — the IRS may require them to file a return. There are two main situations to consider.
Their unearned income exceeds $2,600
Your child will fall under what’s known as the kiddie tax and will need to file Form 8615, Tax for Certain Children Who Have Unearned Income, if their unearned income is over $2,600 and they are:
- Under age 18 at year-end
- Age 18 and didn't earn more than half of their own support
- A full-time student between ages 19 and 23 who didn't earn more than half of their own support
They may also be subject to the Net Investment Income Tax, a 3.8% tax on the lesser of one of the following:
- Their net investment income
- The amount by which their modified adjusted gross income exceeds a threshold
If the NIIT applies, your child may need to adjust their income tax withholding or estimated payments to cover the extra liability.
What counts as net investment income?
- Interest, dividends, annuities, royalties and rent (unless from an exempt business)
- Passive business income or income from trading financial instruments or commodities
- Net capital gains (such as profits from stocks, mutual funds or real estate not tied to a business)
- Gains from selling interests in partnerships or S corporations (in most cases)
Their unearned income is under $13,000
If your child’s unearned income is over $2,600 but under $13,000, you might have another option.
If their unearned income is below $13,000, you may be able to report that unearned income on your own tax return instead of filing a separate return for them. To do this, attach Form 8814, Parent’s Election to Report Child’s Interest and Dividends, to your Form 1040.
This option is available if:
- Your child was under age 19 (or under age 24 if a full-time student) at year-end
- Their income was under $13,000 and came only from interest, dividends, capital gains distributions or Alaska Permanent Fund dividends
- No estimated tax payments were made under their name and Social Security number
- No overpayments from last year were applied to this year under their name
- No backup withholding was applied to their income
- They’re not filing a joint return
- You're the parent eligible to make the election (or you file jointly with the other parent)
It’s important to know that while this option may simplify your filing, it’s not always the most tax-efficient.
Taxes may not be the first thing that come to mind when you think about your child’s income, but making the right call now can save headaches later. A CPA can help you weigh the trade-offs, minimize exposure and stay on the IRS’s good side.
News
Related News
Prepare for the 2025 tax year with strategic planning under the One Big Beautiful Bill Act. Learn how to maximize…
Involving your adult children in the family business can strengthen both your legacy and theirs, but it requires structure and…