What to Know About Kids and Taxes
We claim our daughter as a dependent on our taxes. She worked last summer at her college. Does she have to file taxes?
Kids who are claimed as dependents on their parents’ returns must file a tax return if they earned more than $5,800 from a job in 2011. If your daughter earned less than that, she may still be required to file a return if she earned more than $300 for the year from any investments in her name, such as a custodial account or a savings account.
But even if she isn’t required to file a tax return, she should still file if taxes are withheld from her paychecks, so she can potentially get a refund. (She won’t get back money that was withheld for Social Security taxes, but her work will give her credit toward eligibility for Social Security benefits.) For more information, see IRS Publication 929, Tax Rules for Children and Dependents.
Here’s a bonus to a summer job: As soon as your child has earned income, regardless of her age, she is eligible to contribute to a Roth IRA, which can be a great way to start building tax-free income for the future. She still has time to contribute up to the amount of money she earned for 2011, to a maximum of $5,000. You are allowed to give her the money to make the contribution. Some firms make it easier than others to set up Roth IRAs for kids. TD Ameritrade, Scottrade and Charles Schwab offer IRAs for kids with low investment minimums and no annual fees. See Roth IRAs for Kids for more information.
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