Because your teen is your dependent, his or her taxable income is inherently linked to yours. The obligation to file a return depends on a number of factors (primarily age and the amount and type of income), and in some cases your teen’s income can be reported on your return.

IRS Publication 929 is very helpful in sorting through the intricacies of these rules. You may also want to consult with your tax professional and refer to the instructions for IRS Form 1040 for details.

You’ll have to examine your own situation to determine your responsibilities, but we can try to simplify things with the following guidelines:

• For tax year 2006, a return is necessary for earned income over $5,150. However, even if your child earned less, he or she may want to file a return since a refund may be due.
• For tax year 2006, if your child is under 18, has less than $850 of unearned income and has no other income, he or she does not have to file a return. If he or she has more than $850 of unearned income, a return must be filed.
• For tax year 2006, if your child is under 18 and has unearned income between $851 and $1,700, it is taxed at the child’s rate. After that, unearned income over $1,700 is taxed at your rate.
• If your child is over 18, he or she will pay taxes at his or her own rate.
• The federal tax rates for single filers for 2006 and 2007 are:

Who Does the Paperwork?

If the return isn't complicated and your child is old enough to read and follow instructions, filling out a tax return can be a good learning experience. Naturally, you can help prepare the return, or if you prefer, you can handle the task yourself.

Legally, any child who can write can sign the form. If he or she is too young, you can sign your child’s name in the space provided at the bottom of the tax return. Then simply add: "By (signature), parent (or guardian) for minor child.”

See IRS Publication 929, available at the IRS website, for details.

 

This information is not intended to be a substitute for specific individualized tax, legal or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner or investment manager.