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Children or other people who can be claimed as dependents on someone else's tax return (see discussion below) generally must file a tax return if they have more than $850 of unearned income (interest, dividends, capital gains), or earned income over $5,350, or their total income was more than the larger of $850 or their earned income (up to $5,050) plus $300.
If the dependent is age 65 or over or blind, he or she generally must file a return if their unearned income was more than $2,150 for singles or $1,900 for marrieds. If the dependent was both 65 or over and blind, you can add to these amounts an extra $1,300 for singles or $1,050 for marrieds.
When tallying up a dependent's income, "unearned income" includes interest, dividends, capital gains, unemployment compensation, taxable Social Security benefits, pensions, annuities, and trust distributions. "Earned income" includes wages, salaries, tips, and net income from a business; it also includes taxable scholarship and fellowship grants.
If the child or other dependent is too young or otherwise incapable of filing a tax return, his or her parent, guardian, or other legally responsible person must file the tax return for the dependent. In that case the responsible adult filing the return would sign the return for the dependent, and add their own name; for example, "John Jones, Jr., by John Jones, parent of minor child."
If the child is under age 18 and his or her only income is interest and dividends, the parent has the option to include the child's income on the parent's return by filing IRS Form 8814, Parent's Election to Report Child's Interest and Dividends, along with the parent's return.
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Combining a child's income with that of the parents would save the child from having to file his or her own tax return; however, it frequently results in a slightly larger tax bill since the child's income will increase the parents' AGI and possibly reduce the deductible portion of the parents' itemized medical expenses, miscellaneous deductions, casualty losses, and IRA deductions.
There are many other tax breaks that are phased out at higher levels of AGI and that can potentially be lost or reduced if a child's income is combined with the parents' income, so in most cases the family will be better off if the child files a separate return.
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