Do kids have to file taxes? Or do kids have to pay taxes? Yes sometimes. Kids and taxes? Doesn’t that look strange? No it doesn’t if the kid that we are referring here has some real good investment in his/her name which is giving good returns too.

Or when kids are earning their income that comes under the IRS limit. The former is called unearned income and the latter, earned income. Unearned income usually is the result of parents gifting their kids – that is wealthy parents who want to dodge their income tax usually ‘gift’ investments to their kids.

For the year 2009, the income requirements for kids who are infact or claim to be your dependent for filing their taxes are – their earned income is more than USD 5700 per year or their unearned income that is income earned from investments made on their behalf by their parents such as dividends and interest is more than USD 950 (It was USD 900 in 2008).

Apart from this kids have to pay taxes if their net income from any sort of self employment is more than USD 400. And finally if the kid’s earned income and unearned income together is greater than the larger of USD 950 or earned income plus USD 300.

I know it sounds confusing, but so is everything related to filing your tax returns. Now there are two ways by which your kids can file their tax returns. One, the kid can file his or her returns as an attachment to his/her parent’s returns.

This can be done only if the kid is less than 19 years old or a full time student less than 24 years old, and the kid has only unearned income (dividend, interest etc) less than USD 9500. In such circumstances you need to file Form 8814.  And two, if the kid doesn’t meet any of the above criteria then has to file his/her own returns. This may result in lower taxes though.

Another important point to note is that if the unearned income of the child is less than USD 1900 then the income will be taxed at the tax rate meant for kids. But if it is more than USD 1900, then even for a child, the income will be taxed at the rate meant for adults.

And finally if your child wants to get a refund for his/her part time work even if the child doesn’t have to pay taxes, then can file the returns to get the refund. The tax rules for kids who are blind or married however differ from what has been given above. In case you are not able to understand the income requirement calculation as given above feel free to get in touch with me.