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How Much Can A Dependent Child Earn – Does Your Kid Need To File Taxes?


So Your Kid Got A Summer Job – Just How Much Can A Dependent Child Earn?

So your kid got a job this summer. That’s great, and you should be proud of them. But unfortunately, for many parents, the idea of their child earning money seems like an impossible dream. However, the reality is that things just got more complicated. 

When your child earns money, from babysitting to tutoring younger children or doing chores around the house, you must understand how much they’re making so you don’t miss out on any taxes or opportunities for financial growth and teach them financial literacy along the way.

As adults, we have spent years learning about taxes and how they work. However, it isn’t always easy to explain these concepts to our children in simple terms—and especially not when they’re just starting on their own. So, to help make things easier for you here’s everything you need to know about how much can a dependent child earn in 2022:

 

How Much Can a Dependent Child Earn in 2022

Your child has probably been looking forward to their first summer job—or at least the chance to make some money. But as a parent, you may wonder if your child’s earnings, in addition to your income, will now put you over the top for paying taxes.

The good news is that the IRS guidelines are based on the dependent’s quantity and type of income. So, you can claim a dependent child’s investment income up to a specific amount on your tax return. However, anything over that requires them to submit their return separately.

At this moment, you might ask yourself, “How much can a dependent child earn in 2022?” Let’s find out!

Tax Deductions for Dependent Child’s Income

Have you ever wondered if your child has been making money out of pocket and whether or not they will have to pay taxes on it? If you have, then you are not alone. Many parents wonder if their child has to pay taxes on money they earn by doing odd jobs around the house or babysitting for neighbors. 

The answer is yes. A dependent child has to pay taxes on the money they earn. Dependent children are full-time students younger than 19 at the end of the calendar year or students under 24 who cannot provide half their support. 

However, the IRS has a lot of rules regarding how much money your child can make before they have to pay taxes on it. For example, the IRS says that a dependent child must earn more than $12,550 to be taxed on their income. That means if your child finds a summer job and payment does not exceed this amount, they can earn up to $12,550 without paying tax.

 

Do Minor Dependents Have to File Taxes?

If you think about it, most people consider that child dependent and does not have to file for tax. Or their parents, for that matter. But, as per IRS, if your child fulfills specific requirements, the dependant status does not relieve them from paying taxes. So what are these requirements? 

Before you make assumptions about whether your dependent child will owe taxes on their earnings, it’s helpful to understand the difference between earned and unearned income. The distinction is important because of what it means for whether your child needs to file a tax return. The main reason why this is all so important for your family is that it helps determine whether your dependent will have to file a tax return—and potentially owe taxes on that money.

 

There are two types of income: 

  • Earned income is any income that your child receives from working, including salaries
  • Unearned income is money your child receives from sources other than working. Investment income includes dividends, interest, capital gains (profits made from selling stocks or other assets)

That division between types of income comes with requirements. For instance, if your child has unearned income above $1,150, they will have to file for tax. Another example is if your child has earned income above $12,950 yearly, they will also be eligible for filling tax. Finally, if your dependent child earns more than the standard deduction, they must file a tax return.

 

Should Your Child File a Return Even if it Isn’t Necessary?

Should your child be filing an income tax return? Well… if you think of it this way: when was the last time you bought something from Amazon and didn’t pay sales tax? Sales taxes are collected by the state where you purchased the item; many states also require consumers who buy goods over the internet and have them shipped into the state to pay sales taxes. That is called “use” tax, and if you’re buying stuff online all summer long (books, clothes), you can expect to get hit with it come fall.

A similar concept applies here: If your child had summer or odd jobs, and made more than the standard threshold, then you must take responsibility for filing their tax returns as a parent or legal guardian. However, there are certain situations when your child might be allowed to file a separate tax return. 

  • Your child’s only source of income is interest, dividends, and capital gains.
  • After the year, your child was under the age of 19 or 24 if a full-time student.
  • The gross income of your child was less than $11,000.
  • For the tax year, your child does not file a joint return.
  • There were no scheduled tax payments for the year and no overpayments from the previous year.
  • No federal income tax was withheld from your child’s earnings.
  • You are the parent whose return must be utilized when applying the child tax regulations.

 

Ways to Teach Taxes to Kids + Practical Tax Games For Kids

You might think your child is not old enough to understand taxes. However, time flies quickly, and there is no better moment to teach them taxes than now. Teaching taxes to your child is a great excuse to talk about money management, and it can help you prepare them for what it means to be an adult if you haven’t explained the concept of budgeting before the taxes. You might consider starting. Today there are money management and chores apps supported by prepaid debit cards. These are great starting points for your child to learn about real-life finances. 

Although taxes are generally a part of being an adult, if you want your kid to feel like they’re making their own money and not just getting handouts from you, teaching them about tax rates will help them understand why the government takes such a big chunk of their paychecks. 

 

1. Talk It Through

Have a conversation with your child about how money management works. You can explain taxes by giving them real-world examples. For example, you can explain how their school fees and other expenses are taken out of their monthly pocket money. You can also explain how the government collects taxes from people who earn more than a certain amount per year.

2. Teach Them How to Keep Track of Their Money And Debits on a Budget Planner or App

Use an app like BusyKid to help your children keep track of their spending habits over time so they can see where their money goes each month and why. You can even get them a prepaid debit card to teach them how genuine world financing works. It will help them understand budgets better—which is one of the best things you can do to help them learn how to manage their money.

3. Start With A Good Example

Your child will learn best when they see you model the behavior you want them to emulate, which means being honest about how much money you make and how much of it goes to taxes. You don’t have to be exact, but try to give them an idea of how much tax money goes toward things like parks, roads, schools, etc. It’s also a good idea to show them what tax forms look like. Stress that tax returns are generally due by April 15 of each year but that they can file sooner if they are prepared and have all the necessary documents!

4. Play Games

Games can include much more than simple entertainment. Kids learn through having fun. For instance, younger kids come up to work together, like a surprise gift for Mom or Dad. Then, as they earn money through chores, they put their earnings in a clear jar with the tax in a separate jar. For every dollar made, 10 cents go to the tax jar. Once the goal is completed, reward them with the tax money and explain why it is essential. 

For teenagers, it is pretty simple. There is always something they want or need. So perhaps doing chores around the house and odd jobs are a good start. Let them have their earned allowance but always take 10%, for instance. Then, of course, you can put that money aside and let them have it later as a reward, but the point is they have to understand that there are always expenses. 

 

Conclusion

Aside from the tips we gave above, you can also approach the topic of taxes from many other angles. For the most part, teaching your child about income tax is more of an exercise in teaching them discipline and financial responsibility. Make sure they understand how to save money, budget spending, and avoid impulse purchases.

Ultimately, they will have their income and be obliged to pay taxes. That is a big responsibility, and they will need to learn how to handle it. Hopefully, we’ve eliminated any confusion you may have had on this subject. If there’s one clear thing, it’s that the answers to these questions can get a bit tricky. But armed with the correct information, you should be able to figure out how much can dependent child earns in a year and what they might expect to pay come tax time.

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