Taxes are not usually associated with children. According to the IRS, however, children can also incur tax liability, and any child who earns an income greater than the federally allowed amount must file an income tax return. If your child is entrepreneurially inclined he may also be responsible for paying self-employment tax.
Income
A summer job or lemonade stand can come with tax responsibility, regardless of the wage earner's age or intentions. The IRS requires any minor earning more than $5,700 in a given tax year to file an income tax return. If, for example, your 16-year-old son mows lawns during the summer and generates $5,800 he must file an income tax return, in addition to any taxes that are withheld from his paycheck.
Tax Return
Parents may be surprised to learn that the IRS holds their child responsible for filing her own tax return. Minors are also expected to pay any tax penalties associated with their earned income. In instances when the child is too young to read or write, or otherwise physically unable to file her own return, a parent or guardian can submit the return on the child's behalf.
Self-employment Tax
Unlike self-employed adults, children who have their own business do not usually pay this type of tax. If, however, a minor earns income that accounts for more than 50 percent of his total support, including rent, food and clothing, than that child is responsible for paying self-employment tax. As of 2011, the self-employment tax rate is 13.3 percent on the first $106,800 earned, 10.4 percent of which goes toward Social Security and 2.9 percent for Medicare.
Filing
If your child has a prosperous business and must pay self-employment tax she can follow the same procedure as a self-employed adult. A 1040, 1040A or 1040EZ form can be used to report your earned income. Your child may want to file as a sole proprietor, in which case, a Schedule C or C-EZ may also be used. If you anticipate your child earning self-employment income during the following tax year, you should refer to the IRS website for information about quarterly tax liability.
References
- Internal Revenue Service: Frequently Asked Questions
- National Financial Educators Council. "Why Isn't Personal Finance Taught in School?" Accessed July 14, 2020.
- FINRA. "2018 National Financial Capability Study," Page 34. Accessed July 14, 2020.
- Internal Revenue Service. "Qualifying Child Rules." Accessed July 14, 2020.
- U.S. Congress. "Tax Cuts and Jobs Act," Page 29. Accessed July 14, 2020.
- Internal Revenue Service. "Credits & Deductions for Individuals." Accessed July 14, 2020.
- Internal Revenue Service. "2019 Publication 929: Tax Rules for Children and Dependents," Pages 3-7. Accessed July 14, 2020.
- Internal Revenue Service. "2019 Publication 929: Tax Rules for Children and Dependents," Page 10. Accessed July 14, 2020.
- Internal Revenue Service. "Claiming Exemption from Withholding for Employers." Accessed July 14, 2020.
- Internal Revenue Service. "About Form 1040-EZ, Income Tax Return for Single and Joint Filers With No Dependents." Accessed July 14, 2020.
- Internal Revenue Service. "Form 1040." Accessed July 14, 2020.
- Internal Revenue Service. "Self-Employed Individuals Tax Center." Accessed July 14, 2020.
- Social Security Administration. "Social Security Credits." Accessed July 14, 2020.
- Internal Revenue Service. "Individual Retirement Arrangements (IRAs)." Accessed July 14, 2020.
- Internal Revenue Service. "2019 Publication 929: Tax Rules for Children and Dependents," Pages 7–8. Accessed Dec. 5, 2019.
- Internal Revenue Service. "2019 Publication 929: Tax Rules for Children and Dependents," Pages 10–11. Accessed July 14, 2020.
Writer Bio
Sophia Harrison began writing professionally in 2007. She has a Master of Arts in economics from the University at Buffalo-SUNY, as well as experience working in the New York City financial industry.