A tax return usually must be filed for a minor child whose income included investment income, such as interest and dividends, and totals more than $950.

The minor child pays no tax on the first $950 of unearned income and pays tax on the next $950 at his or her own (presumably 10%) tax rate. If the minor child receives annual unearned income of more than $1,900 and is under age 18, he or she will be liable for tax on amounts in excess of $1,900 at the parent taxpayer’s maximum marginal tax rate. This tax rule, commonly referred to as the “Kiddie Tax”, reduces the appeal of shifting income producing property to children under age 18.

A minor child is a taxpayer in his/her own right. If the tax laws require the minor child to file a tax return but he/she is unable to file the tax return for any reason the parent or guardian is required to file the tax return. If the minor child cannot sign the tax return the parent should sign the child’s name on the tax return followed by “by [parent’s signature], parent for minor child”.

If the child is under 18 and has gross income of more than $950, the taxpayer should consider electing to include the child’s tax liability on his tax return. This option is available if the child’s gross income is comprised only of interest and dividends totaling $9,500 or less, no estimated tax payments are were made, and the minor child is not subject to backup tax withholding. Making this election requires including the child’s gross income in excess of $1,900 on the parent’s tax return.

Child Tax Returns – Kiddie Tax