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Do I Pay Taxes on My Children’s Income?

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Did your children earn interest on their savings accounts last year? Find out if they need to pay income taxes on their earnings and how to file.

Interest Earnings:

Your dependent children's interest will be taxed if he earned more than $900 in 2008. The $900 includes all unearned income, like dividends and interest.

Additional Earnings:

In addition to interest earnings, if your child earns money from a part time job, the requirements will change slightly. For 2008, he must pay taxes if the earned and unearned total income is greater than the larger of $900 or earned income plus $300.

See When Do Kids Need to File Taxes? for more information on filing requirements for kids with jobs or self employment income.

Tax Rate:

If your children's interest plus dividends plus other investment income total more than $1,800, part of your child's income will be taxed at your tax rate instead of the child's tax rate. This is commonly referred to as the kiddie tax.

How to File:

You can file your chilren's tax return in one of two ways:
  • Attach it to your return. If your child's only income comes from interest and dividends, you can attach Form 8814 to your return. He must be under age 19 (or a full time student under 24), and his income must be less than $9,000. However, this may result in higher taxes on qualified dividends or capital gains than the next option.
  • Complete an individual tax return for your child. If the requirements are not met to attach it to your return, or you want to ensure lower taxes, the child should file his own return.

You can use CompleteTax to file a free child tax return.

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