This article was written by guest blogger Eva Rosenberg.
Is there an age limit when it comes to paying taxes? No. Age has nothing to do with taxes; it’s all about income. Regardless of your age, if you work for someone who pays you or if you own a business, you are required to pay taxes.
Qualifying children who did not earn more than one-half of their own support, are either under age 19 at the end of the year, or are full-time students under 24 may be taxed—and they may be taxed at their parent’s rate in certain circumstances.
When do children pay their parent’s tax rate?
Whether the child pays taxes on his or her income depends on the tax forms filed. In 2014, a child who has dividend or interest income exceeding $2,000 will be taxed at his or her parents’ highest marginal tax rate if the parent files Form 8814, the Parents’ Election to Report Child’s Interest and Dividends.
The first $1,000 will be tax-free, and the second $1,000 will be taxed at 10 percent. After that, the income will be taxed at the parent’s top marginal tax rate vs. the lower long-term capital gains rate.
A parent may want to report a child’s investment income on the child’s tax return so that the parent can qualify for the Earned Income Tax Credit (EITC). In order to receive the EITC, investment income must be less than $3,350 for the year.
When does a child pay taxes at a lower rate?
Fortunately, if the child files his or her own return, he or she may pay less on this income. When a child files his or her own tax returns, that child’s investment income must be recorded on Form 8615, along with the parent’s tax rate.
As long as a child is a dependent, that child cannot claim his or her own exemption. That child can, however, get a refund based on his or her withholding. If the child is in college, he or she may also qualify for the American Opportunity Tax Credit, which helps make college more affordable.
As far as earned income—wages, self-employment income, fellowships contingent upon work being performed, freelance income, and general partnership income—it’s a no-brainer that most adults will have to pay these taxes. Sometimes, even children may need to pay taxes on earned income.
In some cases, children may earn income (i.e., modeling work or entertainers). Others, as they get into their teens, get part-time jobs. If a child has employment income of $400 or more in any year, that child will have to file his or her own tax returns.
There’s no reason to start filing prematurely, but it does help to know when children must file their own tax returns. You may want to show your children how to do this in order to prepare them for the future.
Eva Rosenberg, EA is the publisher of TaxMama.com ®, where your tax questions are answered. She is the author of several books and ebooks, including Small Business Taxes Made Easy. Eva teaches a tax pro course at IRSExams.com and tax courses you might enjoy at http://www.cpelink.com/teamtaxmama.