Should A Dependent File a Tax Return?

If you have a dependent, such as a child or relative, who relies on you for financial support, you might be wondering if they need to file a tax return. Understanding the rules can be tricky, but it's important to get it right.

This guide will help you determine if your dependent needs to file a tax return. We will cover who qualifies as a dependent and the circumstances under which they should file. By following our easy-to-understand explanations, you can ensure you are complying with tax laws.

Understanding Dependents for Tax Purposes

A dependent is an individual you can claim on your tax return because they rely on you for financial support. There are two primary types of dependents: qualifying children and qualifying relatives.

Qualifying Children

Qualifying Children typically include your biological, adopted, or stepchildren. They must meet the following criteria:

• Age: Under 19 years old, or 24 if enrolled in a full-time educational program.
• Relationship: Your child, stepchild, sibling, or a descendant of any of these.
• Residency: Living with you for more than half the year.
• Support: You must provide more than half of their financial support.

Important Note: If you're under 16 and haven’t filed a tax return before, you can’t e-file your first tax return. You can still prepare your return on eFile.com, then print and mail it to the IRS. Next year, you'll be able to e-file your return. If you’re a dependent, your return is usually free on eFile.com. If it's not, reach out to us for a promo code. For instructions on printing and mailing your tax return, click here.

Qualifying Relatives

Qualifying Relatives can be anyone who lives with you and depends on you for financial support. They don't need to be related to you by blood or marriage. However, they must meet these requirements:

• Income: Their income must be below the IRS-specified limit for the year.
• Support: You must provide more than half of their financial support.
• Not a Qualifying Child: They cannot be claimed as a qualifying child by someone else.

Dependent’s Age and Income Thresholds

If a person is under age 24 or was born during the year and has a low taxable income—meaning their income is below the standard deduction amount—it might be beneficial for them to e-file a tax return. This is because they might be eligible for the Earned Income Tax Credit (EITC). 

However, there’s a crucial detail: dependents themselves cannot claim the EITC. Instead, if the dependent’s parent or guardian claims them on their tax return, that person may benefit from the credit.

It’s important to remember that when you claim a dependent on your tax return, you do not report the dependent’s earned income on your own return. The dependent’s tax return is separate, and the income thresholds and filing requirements can differ based on their age and the type of income they have.

Types of Income a Dependent May Have

Dependents may need to file a tax return if they have certain types of income. Here’s a closer look at what counts as taxable income:

Earned Income: This includes wages, salaries, tips, and other compensation received for work performed. It also covers taxable scholarship and fellowship grants. For example, if a student has a part-time job or an internship, their earnings are considered earned income. This income must be reported and can be found on various forms like W-2s or 1099s.

Unearned Income: This refers to income that is not earned through work. Examples include taxable interest, capital gains, ordinary dividends, unemployment compensation, taxable Social Security benefits, pensions, annuities, and income from trusts. Unlike earned income, unearned income can sometimes be less straightforward, as not all unearned income is taxable.

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Filing Requirements for Dependents

A dependent might need to file a tax return based on the amount and type of income they receive. Here are the key filing requirements:

A. Standard Deduction Limits

If you are a dependent and filing your own tax return, your standard deduction cannot exceed the greater of $1,250 or the sum of $400 plus your earned income. However, this total cannot exceed the regular standard deduction amount that applies to single filers.

For example, if your earned income is $500, your standard deduction would be $400 + $500 = $900. Since this amount is less than the standard deduction for a single filer, you would use the $900 as your standard deduction.

B. Age and Filing

If you are under age 16 and filing a tax return for the first time, you cannot e-file it. You will need to prepare your return on a tax preparation site like eFile.com, print it out, and mail it to the IRS. After your first year, you can e-file your returns, and in most cases, eFile.com will allow you to file for free. If you encounter any issues or need a promo code for a free return, reach out to us.

C. Income Requirements for Filing

Generally, a dependent should file a tax return if:

1. They had any taxes withheld from their pay, regardless of their total income.
2. Their earned income exceeds the standard deduction amount.
3. They earned at least $400 from self-employment or freelance work.

When Should a Dependent File Taxes?

A dependent must file a tax return if they meet any of the following criteria for the 2023 tax year:

A. Earned Income: Their earned income exceeds the standard deduction for dependents, which is $1,100. This includes wages, tips, and other forms of compensation for work performed.

B. Unearned Income: Their unearned income exceeds $1,100. This includes interest, dividends, and other types of income that are not earned through work.

C. Combined Income: Their combined earned and unearned income exceeds the combined threshold, which is $1,100 + $1,100 = $2,200 for the 2023 tax year.

Additional Considerations:

• If a dependent is claimed as a qualifying child on another person's tax return, they generally do not need to file their own tax return, even if their income exceeds the filing thresholds.
• If a dependent is claimed as a qualifying relative on another person's tax return, they may still need to file their own tax return if their income exceeds the filing thresholds.
• If a dependent has any other tax obligations, such as self-employment income or investment income, they may need to file a tax return regardless of their income level.

Keep in mind that filing thresholds can change annually. To stay up-to-date with the most current information, regularly check trusted resources or tax platforms like eFile.com.

Dependent Filing Requirements

The filing requirements for dependents vary based on their income and filing status. Here’s a summary of the key points:

A. Earned Income: If a dependent’s earned income exceeds the standard deduction for a single filer, they need to file a tax return. For 2023, this means if their earned income is more than the standard deduction, they should file. For 2024, this threshold might adjust slightly.

B. Investment Income: If a dependent’s investment income exceeds $1,250 for 2023 or $1,300 for 2024, they must file a tax return. This includes income from interest, dividends, and other investments.

C. Self-Employment Income: Regardless of age, if a dependent earns at least $400 from self-employment or freelance work, they must file a return. This rule applies to all tax years.

Married Dependents: If a married dependent’s spouse files a separate return and itemizes deductions, the dependent must also file a separate return if their total income is $5 or more.

Even if a dependent’s income does not reach these thresholds, it’s often advisable to file a return if any taxes were withheld. Preparing a return is usually free on platforms like eFile.com, and you can cancel it if you find you do not need to file.

Dependent Standard Deduction

The standard deduction for a dependent is either $1,250 or the sum of $400 plus their earned income—whichever is greater. However, this total cannot exceed the standard deduction allowed for single filers.

For example, if a dependent’s earned income is $600, their standard deduction would be $400 + $600 = $1,000. Since this amount is less than the standard deduction for a single filer, they would use the $1,000 deduction.

Essential Documents for Filing a Tax Return as a Dependent

To ensure a smooth filing process, gather the following documents:

• W-2 Forms: If you were employed, obtain your W-2 form, which details your earnings and taxes withheld.
• 1099 Forms: For other income sources, such as freelance work or investments, collect the appropriate 1099 forms.
• Documentation of Other Income: Provide proof of any additional income, including rental income or royalties.
• Deduction Receipts: Maintain receipts for deductible expenses, such as medical costs or charitable donations.
• Personal Information: Have your Social Security number and those of any dependents ready. Additionally, provide your bank account information if you anticipate a refund.

Back Tax Dependent Deductions

The remaining filing income requirements are ordered by the latest tax years. File back taxes as soon as possible if you owe taxes or if you are owed a refund.

If you're a dependent on someone else's tax return and you need to file your own, your standard deduction is limited to the greater of $1,250 or the sum of $400 plus your earned income. However, if your income meets or exceeds the standard deduction for your filing status, this rule does not apply.

Here's how it works with some examples:

• Example 1: If you earned $700, your standard deduction would be $1,250. This is because $700 plus $400 equals $1,100, which is less than $1,250, so the standard deduction applies.

• Example 2: If you earned $3,200, your standard deduction would be $3,600. This is because $3,200 plus $400 equals $3,600, which is greater than $1,250.

• Example 3: If your taxable income is $15,000, you would claim the standard deduction for single taxpayers, which is $13,850. You would then pay taxes on the remaining $1,150.

Make sure to understand these rules when filing as a dependent.

What is The Kiddie Tax?

The Kiddie Tax was introduced to prevent parents from transferring their investment income to their child’s name to take advantage of lower tax rates. Before this tax, parents could shift income to their children, who would then be taxed at lower rates. The Kiddie Tax closes this loophole by taxing a child’s unearned income at the parents' tax rates if it exceeds a certain threshold.

How It Works:

• Unearned Income: This includes income from investments like stocks, bonds, or savings accounts.
• Standard Deduction: For 2023, dependents can earn up to $1,250 in unearned income tax-free.
• Tax Rates: If unearned income exceeds $1,250, it is taxed as follows:
• $1,251 - $2,500: Taxed at the child's rate or 10%.
• $2,501 and above: Taxed at the parent’s tax rate.

Kiddie Tax Rates for Recent Years:

• 2024: $1,300 tax-free; $1,301 - $2,600 taxed at 10%; over $2,600 taxed at parents' rate.
• 2023: $1,250 tax-free; $1,251 - $2,500 taxed at 10%; over $2,500 taxed at parents' rate.
• 2022: Same as 2023.
• 2021: Same as 2022.

If you transfer assets to your dependent or if they have their own income from investments, the Kiddie Tax will apply. For accurate tax calculations, use tax preparation tools, which will automatically determine the correct tax based on the Kiddie Tax rules.

Who Does It Apply To? The Kiddie Tax affects any dependent child who is:

• Under 18, or
• A full-time student aged 19-24.

This tax only applies to unearned income such as interest, dividends, capital gains, and taxable scholarships.

What If Your Dependent Has Income?

If your dependent child earns money through work, that income must be reported on their own tax return. This is true even if local laws give parents the right to claim or receive that income.

Important Note: You should not include your dependent's income on your tax return. Your dependent must file their own tax return and indicate that they can be claimed as a dependent on someone else’s return. If this box isn’t checked, it could lead to issues with your e-filed return being rejected by the IRS.

Income Limits for Dependents:

• A qualifying child dependent can earn any amount; there are no income limits for them.
• A qualifying relative, however, can earn up to $4,700 in 2023 (up from $4,400 in 2022) before it affects their dependency status.

What If Your Dependent Has No Income?

Even if your dependent doesn’t earn any income, there are still scenarios where they might need to file a tax return. For example, if they purchased health insurance through the Marketplace, they need to file a return to claim the Premium Tax Credit.

Your dependent can also choose to file a return even if it’s not required, especially if they might be eligible for a tax refund. To find out if they might get a refund, they can use a tax refund calculator by entering their details (such as income, taxes withheld, and any credits). Alternatively, they can start preparing their tax return to see if they qualify for a refund.

Dependent Students and Tax Returns:

If your dependent is a student, they might need to file a return if they meet the IRS filing requirements. Even if they are not required to file, they might want to do so to claim refundable tax credits like the American Opportunity Credit. If they don’t file, you can claim this credit on your own return by reporting their 1098-T.

What If Your Dependent Can’t File Due to Age?

If your dependent is under 16 and filing a tax return for the first time, they cannot e-file. They can still prepare their return, print it, and mail it to the IRS. Next year, they will be able to e-file their return.

If your dependent must file but cannot due to age or another reason, you, as their guardian, will need to file on their behalf. You must sign the return on their behalf, noting "By [your signature], parent for minor child." If there are any taxes owed, you are responsible for paying them.

Dividend and Interest Income from Dependent

You may be able to include your dependent child's dividend and interest income on your tax return. If you report this income on your return, your child will not have to file their own tax return. All of the following conditions must be met before you can claim your child's interest and dividend income on your return:

• Your child is under age 19 (or under age 24 if he or she is a student) at the end of the tax year.
• Your child's gross income is only from dividends and interest (including capital gain distributions and Alaska Permanent Fund dividends).
  • The dividend and interest income was less than $12,500.
• Your child is required to file a tax return unless you meet the requirements to file your own return with your child's income.
• Your child does not file a joint tax return.
• No estimated tax payments were submitted for the current tax year and no overpayments for the previous tax year were applied for the current tax year under your child's name and Social Security number.
• You must be the parent whose tax return is used when reporting your child's income.
• No federal backup withholding tax was withheld from your child's income.

How Do You File a Return for A Young Child Or Relative?

To determine if a young child or relative should file their own tax return or be included in your return, follow these steps:

1. Use the FILEucator Tool: Start by using the FILEucator tool to assess whether the dependent needs to file a return on their own or if it should be included with your return.

2. Check Dependency Status with DEPENDucator: Next, use the DEPENDucator tool to find out if you can claim the child or relative as a dependent on your tax return.

3. Review Results and IRS Guidelines: Combine the results from both tools and review the IRS filing requirements to decide the best approach based on your specific situation.

4. Prepare and E-file the Return: If the dependent needs to file their own return, they can prepare and e-file it on eFile.com. The platform will guide them through the process by determining the correct forms based on their answers to simple tax questions. Before e-filing, the return will be checked for accuracy and completeness.

What if I’m a student and have part-time work?

As a student with part-time work, you might need to file a tax return depending on how much you earned. The filing requirement depends on your income level and whether you’re claimed as a dependent on someone else’s return. If your part-time job earned you more than the IRS threshold for your filing status, you'll need to file. 

Even if you don’t need to file, doing so could be beneficial. You might be eligible for tax credits or refunds if you had taxes withheld. It’s a good idea to review your income and see if filing makes sense for you.

Can I file a return if I didn’t have any taxes withheld?

Yes, you can definitely file a return even if no taxes were withheld from your paycheck. Filing a tax return is about reporting your income to the IRS, and it’s not solely dependent on whether taxes were taken out of your pay.

In fact, filing a return can be beneficial if you’re eligible for tax credits or if you had a small amount of tax withheld and want to claim a refund. So, even if you think you don't owe anything, filing a return could still work in your favor!

Related Information on Dependents and Tax Returns

• Claimed Your Dependent? How to Correct It
• Dependent Eligibility for EITC, CTC, and More
• Child and Dependent Care Expense Tax Credit
• Tax return filing requirements
• Claiming dependents on a tax return
• Filing taxes as a student.

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