Taxpayers with dependents, either children seeking employment or aging parents they are caring for, at some point will need to know when their child or parent may or must file their own tax return. The answer to this question touches on IRS rules regarding both the sources and limits of the dependent's income.
IRS Publication 929 provides guidelines for when and how a dependent's income should be reported. The guidelines vary based on whether the income is that of a qualifying child or a qualifying dependent, the amount of the income, the amounts of earned and unearned income, and the dependent's marital status.
Qualifying Child
A qualifying child's income that the parents may not include on their tax return includes:
- Earned income (wages, salaries, tips, professional fees, and other compensation received for personal services).
- Scholarship receipts not offset by qualifying education expenses.
- Nontaxable unearned income.
One or both parents may include a qualifying child's interest, dividends, and capital gain distributions on their tax return if (a) that is the child's only income, (b) the total is less than $11,500, (c) the child is under age 19 (or under age 24 if a full-time student), (d) the child would have to file a tax return if the parent(s) didn't elect to include their income, (e) the child isn't filing their own joint return, and (f) the child has no estimated payments or tax withholdings. If the parents are not filing jointly, see Publication 929 to determine which parent may claim the child's income in this situation.
The parent(s) elect to include the child's income on Form 8814. However, a child with unearned income of $11,000 or greater must file their own return.
Qualifying Dependent
An aging relative does not have to live with the taxpayer in order to qualify as a dependent if the taxpayer provides over half their support.
When multiple taxpayers contribute to someone's support and no one provides more than half the following rules apply:
- If the dependent doesn't live with any of the taxpayers supporting them and more than half the support is provided by relatives, no nonrelative can claim the dependent.
- If the dependent doesn't live with any of the taxpayers supporting them and more than half the support is provided by nonrelatives, no one may claim the dependent.
- A taxpayer who contributes 10% or less cannot claim the relative as a dependent.
- If more than one taxpayer qualifies to claim the dependent they need to agree among themselves who will claim the dependent for a given year, and each taxpayer who isn't claiming the dependent must provide the taxpayer who is claiming them a signed statement waiving their right to their claim.
- The taxpayer claiming the dependent for a given year must attach to their tax return Form 2210, Multiple Support Declaration, indicating the name, address, and SSN of those who are eligible to claim the dependent but have waived their right for that year. (The actual signed waivers don't need to be attached to the return, only Form 2210.)
Note: A qualifying dependent's income is never reported on the taxpayer's return.
Does a dependent need to file a tax return?
Publication 929 provides the information you need to determine whether or not a dependent needs to file a tax return based on their earned and unearned income, however the dependent must file a return if:
- they had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer Social Security and Medicare taxes;
- they had net earnings of $400 or more from self-employment.
Additionally, they must file if they owe any other taxes such as:
- Social Security and Medicare taxes on tips not reported to their employer.
- Social Security and Medicare taxes that the employer failed to withhold.
- Uncollected Social Security and Medicare taxes or railroad retirement taxes on tips or on group-term life insurance.
- Alternative minimum tax.
- Additional tax on a health savings account from Form 8889 Part III.
- Recapture taxes, e.g., related to an education credit or a credit recapture on Schedule 2.
- Additional tax on qualified retirement plan distributions (Note: if this is the only tax, they can complete and file Form 5329 by itself.)
If a dependent isn't required to file a tax return they nonetheless should consider filing a tax return if they are due a refund because:
- income tax was withheld from their income, or
- they qualify for the earned income credit.
Note: This is a brief guide on reporting dependent income. It is not intended as tax advice.
Additional Information:
IRS: Filing Requirements Questionnaire
IRS: Pub 929, Tax Rules for Children and Dependents
IRS: Pub 501, Dependents, Standard Deduction, and Filing Information