Do children have to file tax returns?
A tax return usually must be filed for a child whose income included investment income, such as interest and dividends, and totals more than $750. Your child pays no tax on the first $750 of unearned income and pays tax on the next $750 at his or her own (presumably 10%) tax rate. If your child receives annual unearned income of more than $1,500 and is under age 18, he or she will be liable for tax on amounts in excess of $1,500 at your 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. The table below shows why it may be beneficial to shift some taxable investment income to your children.
