Your child has started earning their own money, but you’re still claiming them as a dependent. How will this situation affect your taxes?
One of the most common tax questions parents have is if they should report their dependent child’s W-2 on their tax return or if the child should file their own return. Here’s what you need to know before you file.
Should my child file their own tax return?
You cannot report your child’s Form W-2 on your tax return. If your child has earned income during the tax year, they must file a separate return to either receive a tax refund or pay any balance owed to the IRS.
However, even if your child must file separately, you can still claim them as a dependent on your taxes if they meet the criteria of a qualifying child. When you file a separate return for your child, you will just have to indicate that they can be claimed as a dependent on someone else’s return (AKA your return).
How do I know if my child qualifies as a dependent?
For your child to qualify as a dependent, they must meet the following requirements:
- They must be your child, stepchild, foster child, sibling, half-sibling, stepsibling, or a descendant of any of them (your niece or nephew, for example).
- They must be under 19 years old (or under 24 years old if they are a full-time student). If they were permanently disabled at any time during the year, there is no age threshold.
- They must have lived with you for more than half of the year. Exceptions include the child being temporarily away at college, in the hospital, or juvenile detention.
- They must not provide more than half of their own financial support during the year.
- They must be younger than you unless they are disabled.
- They must be a U.S. citizen, U.S. national, resident alien, or a resident of Canada or Mexico.
- The child must not be claimed as a dependent by someone else.
Can I claim my child’s investment income on my tax return?
Parents can sometimes claim their child’s investment income on their tax return.
If your dependent child has income such as dividends or interest, the IRS considers this “unearned income.” You can typically choose to report your child’s unearned income on your return or your child’s return. However, if your child’s interest or dividend income totals $11,000 or more, it must be reported separately on your child’s own return.
Remember, if your child has earned income, they will still need to file a separate return even if you’re reporting the child’s investment income on your return. If the child doesn’t have any earned income and you include their unearned income on your return, the child will not have to file a return.
For more answers to common tax questions, check out our interactive Q&A.