1.13 Filing for Your Child

The income of your minor child is not included on your return unless you make a special election to report a child’s investment income (24.4). A minor is considered a taxpayer in his or her own right. If the child is required to file a return but is unable to do so because of age or for any other reason, the parent or guardian is responsible for filing the return.

A tax return must be filed for a dependent child who had more than $950 of investment income and no earned income (for personal services) for 2012. If your child had only earned income (for personal services) and no investment income, a tax return must be filed if the earned income exceeded $5,950. See page 4 for further filing threshold rules.

Caution

Kiddie Tax May Apply to Investment Income

If your child has 2012 investment income exceeding $1,900, his or her tax liability generally must be figured on Form 8615, and under the “kiddie tax” rules, the excess over $1,900 will be taxed at your top tax rate rather than at your child’s rate. The kiddie tax applies to children under age 18, and also to children who at the end of the year are either age 18 or full-time students under age 24 if their earned income is no more than 50% of their total support for the year (24.2).

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If the child is unable to sign the return, the parent or guardian should sign the child’s name in the proper place, followed by the words, “by [signature], parent [or guardian] for minor child.” A parent is liable for tax due on pay earned by the child for services, but not on investment income.

A child who is not required to file a return should still do so for a refund of taxes withheld.

Social Security numbers.

A parent or guardian must obtain a Social Security number for a child before filing the child’s first income tax return. The child’s Social Security number must also be provided to banks, brokers, and other payers of interest and dividends to avoid penalties and backup withholding (26.12). To obtain a Social Security number, file Form SS-5 with your local Social Security office. If you have applied for a Social Security number but not yet received it by the filing due date, write “applied for” on the tax return in the space provided for the number.

Whether or not you are filing a return for a child, you must obtain and report on your return a Social Security number for a child whom you are claiming as a dependent (21.1).

Wages you pay your children.

You may deduct wages paid to your children in your business. Keep records showing that their activities are of a business rather than personal nature.

Withholding for children.

Children with wages are generally subject to withholding and should file Form W-4 with their employer. An exemption from withholding may be claimed only in limited cases. The child must certify on Form W-4 that he or she had no federal tax liability in the prior year and expects no liability in the current year for which the withholding exemption is sought. For example, on Form W-4 for 2012, a child with investment income exceeding $300 who expected to be claimed as another taxpayer’s dependent could claim an exemption from withholding only if the expected amount of investment income plus wages was $950 or less (the $300 and $950 amounts are subject to change annually).

Wages you pay to your own children under age 18 for working in your business are not subject to FICA taxes (Social Security and Medicare) (26.9).