Tax question: How to report dependent children's income

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Topic Author
mvc
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Joined: Mon Nov 26, 2007 12:03 pm

Tax question: How to report dependent children's income

Post by mvc » Fri Feb 28, 2020 8:35 am

Hi,
I need some help with a tax question. I and my wife have been filing joint tax returns all these years. We have two children and both of them have reportable incomes for the first time and I am trying to figure out how to handle this situation (for this year and in future). I will be using TaxAct for my tax filing.

1) Child 1 (16 years old): She has I099-INT income of $27 (savings account) for 2019. Looks like I can't report this in my own tax return. When I chatted with the TaxAct rep, she told me that I have to file a separate return for my daughter. Is this true? If yes, then how do I still keep her as my dependent in my return so that I can claim $2000 Child Tax Credit.

1) Child 2 (19 years old colledge student): She has I099-INT income of $27 (savings account) and a W2 income (summer job) of $900 for 2019. Does she have to file a separate return for herself? If yes, then how do I still keep her as my dependent in my return so that I can claim $500 Child Tax Credit.

Adiitional Note: I also have 529s for my children. Although I did not withdraw any money from this account in 2019, I will withdraw some in 2020. I prefer to keep my tax filing as simple as possible so that it does not complicate how I report the distribution from the 529s (though only for next year and onwards).

Thanks
mvc

mega317
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Re: Tax question: How to report dependent children's income

Post by mega317 » Fri Feb 28, 2020 8:46 am

Having income and/or filing a return does not automatically mean the filer can't be a dependent. If they could be your dependent without the income you describe, then they still can be.

Based on the income you describe, they do not have to file. If they want to/should file may be a different story.
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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dodecahedron
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Re: Tax question: How to report dependent children's income

Post by dodecahedron » Fri Feb 28, 2020 8:48 am

Under no circumstances are you required to report either of your dependents´ income on your return. If the dependents need to file returns or want to do so for any reason, their income goes on their returns, not yours.

Neither of your dependent children has a filing requirement for federal taxes. Younger child has no need whatsoever to file and her interest income does not need to be reported on your return. Older child does not need to file but may *want* to file if she had taxes withheld. Tell her to check box 2 of her W-2. If any number other than zero appears there, she can file her own return and claim that Box 2 amount back. It may not be much money, but it could be a worthwhile educational experience for her to file. She qualifies for free filing software.

Most states with which I am familiar would not require either of your kids to file state returns. I would be surprised if any states do. (NYS requires dependents to file returns if their AGI exceeds $3,000, for example.) Check Box 17 to see if any state tax was withheld. Filing a state return should get that amount back (at least in all states with which I am familiar.)

Regardless of whether your dependent files a return to report *their* income, they can still be claimed as your dependent. Just make sure that they check the box on their return to indicate that another taxpayer can claim them as a dependent.

Topic Author
mvc
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Re: Tax question: How to report dependent children's income

Post by mvc » Fri Feb 28, 2020 8:58 am

mega317 and dodecahedron:
Thank you both for your responses. My older daughter's W2 has some income withheld and I will ask her to file her own return and get her withholding refunded.

Thanks again.
mvc

kaneohe
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Re: Tax question: How to report dependent children's income

Post by kaneohe » Fri Feb 28, 2020 9:07 am

https://www.irs.gov/pub/irs-pdf/p4012.pdf

see chart on p.A2

"Single Dependents
Under 65 and not blind
You must file a return if any of the following apply.
1. Your unearned income was over $1,100.
2. Your earned income was over $12,200.
3. Your gross income was more than the larger of —
a. $1,100, or
b. Your earned income (up to $11,850) plus $350.

Form 8615, Tax for Certain Children who have Unearned Income (Kiddie Tax)
Children under age 18 and certain older children who are required to file a tax return and have unearned
income over $2,200 must file Form 8615. For this purpose, “unearned income” includes all taxable income
other than earned income, such as taxable interest, ordinary dividends, capital gains, rents, royalties,
etc. It also includes taxable social security benefits, pension and annuity income, taxable scholarship and
fellowship grants not reported on Form W-2, unemployment compensation, alimony, and income received
as the beneficiary of a trust. Form 8615 is in scope, with limitations. See Tab H, Other Taxes, Payments and
ACA."

tomd37
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Re: Tax question: How to report dependent children's income

Post by tomd37 » Fri Feb 28, 2020 9:59 am

mvc - When your older daughter files her own return to claim a refund of federal tax withheld, make sure she properly indicates on her tax return that she is being claimed as a dependent on another persons return (yours). That way neither of the returns should reject.
Tom D.

aristotelian
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Re: Tax question: How to report dependent children's income

Post by aristotelian » Fri Feb 28, 2020 11:07 am

I file separate returns for my kids' investment income (they are younger than OP). There is no problem still claiming them as dependent, just make sure the older kids qualify and check the box that someone else is claiming them as dependent. Turbotax should do the rest and generate Form 8615 as others said.

One reason to consider filing even for the one with just the interest income is to cut down on tax/identity fraud.

FreetaxUSA will now do minor returns, which did not used to be the case.

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teen persuasion
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Re: Tax question: How to report dependent children's income

Post by teen persuasion » Fri Feb 28, 2020 12:35 pm

It's a good experience for teens to file their own tax return.

I walked my son thru his first one when he was 15. Only hiccup was when he went to e-file, the SW told him he couldn't, because he was under 16. Luckily, his bday was less than a week away, so he waited a week, tried again (everything was saved, just doing the transmit stage) and success. Otherwise, he would have paper filed.

DIFAR31
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Re: Tax question: How to report dependent children's income

Post by DIFAR31 » Fri Feb 28, 2020 1:15 pm

mvc wrote:
Fri Feb 28, 2020 8:35 am
Adiitional Note: I also have 529s for my children. Although I did not withdraw any money from this account in 2019, I will withdraw some in 2020. I prefer to keep my tax filing as simple as possible so that it does not complicate how I report the distribution from the 529s (though only for next year and onwards).
If all of the 529 distributions are used for qualified education expenses, there is nothing to report on any federal tax return. It can't get much simpler than that.

mega317
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Re: Tax question: How to report dependent children's income

Post by mega317 » Fri Feb 28, 2020 3:05 pm

teen persuasion wrote:
Fri Feb 28, 2020 12:35 pm
the SW told him he couldn't, because he was under 16.
Why?
https://www.bogleheads.org/forum/viewtopic.php?t=6212

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teen persuasion
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Re: Tax question: How to report dependent children's income

Post by teen persuasion » Fri Feb 28, 2020 3:10 pm

mega317 wrote:
Fri Feb 28, 2020 3:05 pm
teen persuasion wrote:
Fri Feb 28, 2020 12:35 pm
the SW told him he couldn't, because he was under 16.
Why?
IDK, other than there's apparently a rule that taxpayers under age 16 can't e-file. :annoyed

Topic Author
mvc
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Re: Tax question: How to report dependent children's income

Post by mvc » Fri Feb 28, 2020 3:12 pm

Thanks all for the responses. Greately appreciate the help.

mvc

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teen persuasion
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Re: Tax question: How to report dependent children's income

Post by teen persuasion » Fri Feb 28, 2020 3:14 pm

Should have googled first. It's for first timers.
Tax Return Filing Requirements for Dependents
If you are a dependent on somebodies tax return and do not know whether or not to file a tax return, review the minimum income requirements and learn how to file a tax return as a dependent. Be aware that if you are under age 16 and have never filed a tax return, you cannot yet e-file your first year. You can prepare your 2019 return on efile.com, print it, and mail it to the IRS to file it. However, you will be able to e-file your return the following year.
https://www.efile.com/tax/do-i-need-to ... endents

Topic Author
mvc
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Re: Tax question: How to report dependent children's income

Post by mvc » Fri Feb 28, 2020 4:45 pm

Thank you all for the responses. Greately appreciate your help.

mvc

trueblueky
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Re: Tax question: How to report dependent children's income

Post by trueblueky » Fri Feb 28, 2020 5:29 pm

dodecahedron wrote:
Fri Feb 28, 2020 8:48 am
Under no circumstances are you required to report either of your dependents´ income on your return. If the dependents need to file returns or want to do so for any reason, their income goes on their returns, not yours.

Neither of your dependent children has a filing requirement for federal taxes. Younger child has no need whatsoever to file and her interest income does not need to be reported on your return. Older child does not need to file but may *want* to file if she had taxes withheld. Tell her to check box 2 of her W-2. If any number other than zero appears there, she can file her own return and claim that Box 2 amount back. It may not be much money, but it could be a worthwhile educational experience for her to file. She qualifies for free filing software.

Most states with which I am familiar would not require either of your kids to file state returns. I would be surprised if any states do. (NYS requires dependents to file returns if their AGI exceeds $3,000, for example.) Check Box 17 to see if any state tax was withheld. Filing a state return should get that amount back (at least in all states with which I am familiar.)

Regardless of whether your dependent files a return to report *their* income, they can still be claimed as your dependent. Just make sure that they check the box on their return to indicate that another taxpayer can claim them as a dependent.
I don't know any states, but some cities in KY, PA, maybe elsewhere have a tax on earned income.

jj
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Re: Tax question: How to report dependent children's income

Post by jj » Fri Feb 28, 2020 8:50 pm

teen persuasion wrote:
Fri Feb 28, 2020 3:10 pm
mega317 wrote:
Fri Feb 28, 2020 3:05 pm
teen persuasion wrote:
Fri Feb 28, 2020 12:35 pm
the SW told him he couldn't, because he was under 16.
Why?
IDK, other than there's apparently a rule that taxpayers under age 16 can't e-file. :annoyed
My minor child (under 12) has a UTMA for which I am the custodian. For the first year, I had to send in a paper return. In subsequent years, their return could be e-filed.
...it is madness to risk losing what you need in pursuing what you simply desire. Warren E. Buffett

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dodecahedron
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Re: Tax question: How to report dependent children's income

Post by dodecahedron » Sat Feb 29, 2020 5:40 am

teen persuasion wrote:
Fri Feb 28, 2020 3:14 pm
Should have googled first. It's for first timers.
Tax Return Filing Requirements for Dependents
If you are a dependent on somebodies tax return and do not know whether or not to file a tax return, review the minimum income requirements and learn how to file a tax return as a dependent. Be aware that if you are under age 16 and have never filed a tax return, you cannot yet e-file your first year. You can prepare your 2019 return on efile.com, print it, and mail it to the IRS to file it. However, you will be able to e-file your return the following year.
https://www.efile.com/tax/do-i-need-to ... endents
A more authoritative source is the IRS, here:
https://www.irs.gov/taxtopics/tc255

A first time tax filer under 16 can not sign an electronic return using do-it-yourself software and a Self-Select PIN (SSP).

A first time tax filer under 16 *can* efile a tax return if they do so through an authorized efile provider, such as a paid preparer, a VITA site, or an AARP Tax-Aide site. Our VITA site has efiled first time returns for young teens. We use Practitioner PINs rather than SSPs. Authorized efile providers are required to verify identity of all clients before filing returns.

My understanding from the IRS is that this rule was put in place to reduce identity theft issues for young children, most of whom do not file returns. Before this rule went into effect, there were a significant proportion of identity theft cases involving first-time do-it-yourself software returns filed in the name of young unsuspecting children by total strangers who obtained their names, SSNs and birthdates and plausibly guessed that their prior year AGI was likely zero due to their young age.

Once a young person has filed their first return, their prior year AGI going forward is no longer zero and is therefore harder for a total stranger to guess.

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teen persuasion
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Re: Tax question: How to report dependent children's income

Post by teen persuasion » Sat Feb 29, 2020 8:14 pm

Dodecahedron, thanks for the explanation and the reasoning behind it.

Kagord
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Re: Tax question: How to report dependent children's income

Post by Kagord » Sun Mar 01, 2020 7:23 am

The taxes are paid by what SSN is on the tax form, which should be your children's SSN if setup as UTMA.

Even if not required by the IRS, I had my kids do their own returns in TurboTax starting at age 15. I do this so they get familiar with the process, how taxes work, and getting familiar with the 1099 and W-2 forms (I review it). I view that as the time to start getting familiar with how the world works. I also let them decide their investing strategy, which was quite diverse between them, and try to convey the BH strategy of looking 35-45 years in the future as a target end point.

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