Minor taxed on own income

Dear Chrissie,
You can only file a joint return with your spouse; you can’t file jointly with your children. The income of a child belongs to that child whether earned through work or unearned through investment. A child who is your dependent may have to file a return. This depends on the amount of the child's earned income, unearned income and gross income.

If a dependent child must file an income tax return, but cannot file it because of their age, a parent, guardian or other legally responsible person must file it for the child. If the child cannot sign the return, the parent or guardian must sign the child's name followed by the words: "By (your signature), parent for minor child."

Amounts a child earns by performing services are his or her gross income. This is true even if under local law the child's parents have the right to the earnings and may actually have received them. If the child does not pay the tax due on this income, the parent is liable for the tax.

A child's investment income may be subject to tax at the parent's tax rate if the child is under age 18 (previously under age 14) at the end of the year. The amount of taxable investment income the child can have without it being subject to tax at the parent's rate was $1,700 for 2006. In 2006, a child could have unearned income of up to $850 without being required to file a separate return or being taxed at the parent’s marginal rate. In other words, if your daughter earned less than $850 in interest in 2007, there is no requirement that you file a return for her, nor would you include her interest income on your tax return.

To ensure compliance with requirements imposed by the IRS, we inform you that any U.S. federal tax advice contained in this communication (including any attachments) is not intended or written to be used, and cannot be used, for the purpose of (i) avoiding penalties under the Internal Revenue Code or (ii) promoting, marketing or recommending to another party any transaction or matter addressed herein. Taxpayers should seek professional advice based on their particular circumstances.