The IRS requires all taxpayers, no matter their age, to file a return and pay any tax owed in any year their income exceeds a certain amount. This includes children you claim as dependents. But unlike adult taxpayers, there’s more flexibility around the ways children can comply.
Here’s a guide to help you work out if your child should file. Read on to find out how much under-18s can earn before paying tax, the rules about dependents, how to file a return on your child’s behalf, and more.
Do under-18s pay taxes in the US?
Under-18s who earn under $12,950 in the 2022 tax year won’t pay taxes ($13,850 in 2023). However, they may still need to file a return. It depends on the amount and source of their income.
Do taxes differ if you’re employed or self-employed?
Tax rules are different for self-employed and employed people. If you’re employed, your employer must deposit and report your taxes. Employers are required to withhold federal income tax from your wages and your social security and Medicare taxes.
If you’re self-employed you’re generally required to file an annual return and pay estimated tax every quarter. In most cases, you’ll pay estimated tax if you expect to owe at least $1,000 tax for 2023.
Self-employed people must pay self-employment (SE) tax as well as income tax. SE tax is a Social Security and Medicare tax for those who work for themselves. It’s similar to the Social Security and Medicare taxes employers withhold from your salary if you’re employed.
Under-18s with a self-employed income may owe self-employment tax if they earned over $400 in 2022. Use Form 1040 and read Schedule SE for instructions.
What are employment tax rules for family employees?
Employment tax requirements for family employees may vary from those that apply to other employees. If your family-run business employs your child, as their employer you’ll be required to deposit and withhold income tax, regardless of age. Their pay won’t be subject to social security and medicare taxes if they’re under-18 though.
Similarly, parents employed by their child are subject to taxes. So if your child runs a business and you, as a parent, provide services for that business, they’ll be required to withhold income, social security and medicare taxes from your wages. They’ll also need to report and deposit your tax payments.
What are the rules for dependent children?
There are different rules for taxpayers claimed as dependents. First, make sure your child is eligible. The IRS generally allows you to claim a child as your dependent if:
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The child is your son, daughter, stepchild, or foster child or a descendant of your sibling/half-sibling
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The child is under 19 (or 24 if a full-time student) or any age if permanently disabled
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They live with you for more than half of the year
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They don’t provide more than half their own financial support.
If your child lives away from home — because they’re away at school or college, for example — you may still be able to claim them as a dependent. They’ll just need to meet all the other criteria. Check the IRS's rules for claiming a dependent if you’re unsure.
How much can a child earn before paying taxes in the US?
How much a dependent child can earn before paying taxes depends on their income source. Rules vary, depending on whether it’s earned or investment income.
Earned income
Earned income includes salaries, wages, tips, professional fees, taxable scholarships, and fellowship grants.
For the tax year 2022, a child who can be claimed as a dependent must file a return if their earned income is more than $12,950. For the tax year 2023, this will increase to $13,850.
So if your teen has a part-time job and earns less than $12,950, they’ll owe no taxes. But if their employer withheld taxes from their paycheck by mistake, your teen will need to file a return to get a refund.
Investment income
Investment income (or unearned income as it’s also known) includes taxable interest, ordinary dividends, and capital gains distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and trust money.
According to the IRS’s Tax Rules for Children and Dependents a minor who earned over $1,150 from investment income in the tax year 2022 should file a return. In 2023 the threshold is $1,250.
Gross income
Gross income is the total income earned from all sources including earned and unearned income before expenses. If your child has both earned and unearned (investment) income you’ll need to add both amounts together to see if they need to file a return.
The IRS’s Tax Rules for Children and Dependents can help you figure this out. But if your child’s gross income is greater than either $12,950 in 2022 ($13,850 in 2023) or their earned income plus $400, whichever is less, they should file.
Other requirements
Your child’s income may be under the IRS limits, but there are instances where they might still need to file a return. For example, if they owe social security or medicare taxes on tips they earned.
Filing a tax return on your child’s behalf
Filing a tax return is your child’s responsibility — as long as they’re capable of doing it. If you think your child understands how taxes work you can leave it up to them. Although you might want to be on hand to help if needed.
If your child is too young to understand how to file a tax return, a parent, guardian or responsible adult can file on their behalf. But you can only do this if their income is unearned (dividends or interest).
The IRS also gives you the option to claim money on your tax return instead. But there are conditions. For 2022, these include:
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The child must be under 19 (or under 24 if a full-time student)
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The child’s only income was from interest and dividends
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The child’s gross income for 2022 was under $11,500
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The child is required to file a tax return
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There were no estimated tax payments for the child for 2022
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No federal income tax was withheld from the child’s income.
If you qualify to claim on your own tax return, file Form 8814 with your 1040 and the IRS won’t require your child to file individually. If you’re unsure, check the IRS’s instructions for Form 8814.
If you do prepare your child’s tax return, you can sign it for them if they can’t do it themselves. You’ll also need to add your own signature and note you’re signing for the child as parent/guardian. Signing your child’s return means you can discuss it with the IRS if necessary too.
Do children pay taxes on their savings?
If your child’s interest, dividends, and other investment income combined total over $2,300 they may need to pay tax. Check the IRS’s instructions for Form 8615, for the rules.
If your child’s only income is interest and dividends and totals less than $11,500, you may be able to include that income on your tax return instead of filing one for your child. If you do this, your child won’t have to file a return. For more information on how to report children’s interest and dividends, see Form 8814.
Do parents pay taxes on earnings from their child’s savings?
The tax on children’s savings is known as the Kiddie Tax. It’s a tax law for individuals under 19 or 24 (if in college) whose yearly income is over a certain amount. The Kiddie tax law was passed to discourage parents from taking advantage of lower tax rates by transferring assets to their children.
In 2022, the first $1,150 of a child’s unearned income is tax-free. The next $1,150 is taxed at the child’s income tax rate for 2022. However, any unearned income above $2,200 is taxed at the parent’s marginal tax rate.
Tax-free savings account options for under-18s
A tax-free savings account (TFSA) is only available to those over 18. While there are no federal laws prohibiting kids from opening a savings account, in most states, an adult must open a bank account for a minor. And if you want your child to have access to the account, they’ll need to be 13 years old.
If you’re considering opening a savings account for your child, you have several options. You can open up tax-free accounts for minors related to education (529 plans) or even retirement savings (ROTH IRAs).
But there are alternatives to kids’ bank accounts. GoHenry is a great savings tool. A prepaid kids' debit card for 6-18-year-olds, GoHenry works like a bank account. You can pay in an allowance or income from earnings and set spending limits and savings goals.
And through our in-app Money Missions tool your child can develop a range of money skills, including healthy saving habits. Via fun, interactive games and quizzes, they’ll learn all about investing and the stock market too.
