The key points are as follows:
- Children under 14 can earn up to $850 from investments tax free
- The next $850 is taxed at their rate
- Anything after that (i.e. >$1700) is taxed at the parent's rate
#3, usually catalyzes parents to consider a tax deferred option for their children, such as ROTH IRAs, where the first $4000 can be put.
I checked the IRS website and found the following link that discusses taxes for children with investment income greater that $1,600.
What about regular earnings from newspaper routes to part time jobs, how do they factor in?
Publication 929 discusses tax rules for children and dependents.
- Part 1 indicates that dependent children must file a return if they have more than $5000 of earned income or $800 in unearned income (investment income). They would also have to file a return if they "had net earnings from self-employment of at least $400."
The actual determination of how much income a child may earn before it is taxed was unclearl. I may research this further. Does anyone have any knowledge on this subject? Most of the document focussed on investment income.
Have a wonderful Friday,