What Your CPA Wants You to Know
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What Your CPA Wants You to Know
95. Tax Filing Requirements for Your Dependents: When Children Need to File Returns
We decode the confusing rules around when children and dependents need to file tax returns, covering both W-2 employment income and 1099 contractor payments.
• Children with W-2 income under $14,600 (2024 standard deduction) don't need to file unless they want to claim a refund
• Parents can still claim college students as dependents if providing over half their support
• 1099-NEC income has a much lower threshold - children must file if they earned over $400
• Self-employment taxes (15.3%) apply to 1099 income even when income tax doesn't
• Always track and deduct business expenses to reduce taxable profit on 1099 income
• Common deductions for teen workers include certification costs, mileage, and equipment
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Long story short if they do have a 1099, not a W-2, then they do have to file the tax return if it's over $400.
Speaker 2:Welcome to what your CPA Wants you To Know.
Speaker 1:Tax and accounting help can be expensive, so we've created this podcast to help guide you through it all and make you feel like you have a CPA in your back pocket.
Speaker 2:I'm Carson Sands.
Speaker 1:And I'm Taryn Sands.
Speaker 2:I'm a CPA with over 10 years of experience helping people start and grow their businesses.
Speaker 1:And I'm an MBA with a specialization in marketing and entrepreneurship. Taxes suck and we want to make sure you don't pay more than your fair share.
Speaker 2:We're here to share everything your CPA wants you to know in a fun and easy to understand way. Let's get started.
Speaker 1:Let's do it. Today's episode comes from a question that we've been receiving actually quite a lot this year, and I realized we didn't have an episode about this. So today we're going to talk about filing a tax return for your child or a dependent on your tax return and what the rules are for that. So we've been getting a lot of client emails stating that maybe an older child in high school or college has received a 1099 or a small W-2 and the parents aren't sure if they need to file a tax return and what the rules are, and then also questions on if they can continue to claim them as a dependent once they go to college. So we're going to touch on all of those things quickly because it seems like a lot of people have the same question.
Speaker 2:Great yeah, we can answer all of those questions and more.
Speaker 1:So it's not something that Carson often thinks about because it seems pretty simple, but I understand the confusion and let's talk about it first from a W-2 standpoint. So if your kid gets a W-2, because as always, it depends on what they have and the thresholds and all of that so first let's say your child gets a W-2. They're working at their first job. What are the rules for that?
Speaker 2:So for 2024, the standard deduction is $14,600. That's an important number because it means if their W-2 was under that the total in box one of their W-2, then they don't have to file. Now they might still want to. The next box you want to look at is box two, because that's where the withholding is. If that's a significant amount, it might be worth filing a tax return, because that is where the employer withheld taxes for income tax purposes. Well, if they're under $14,600, then they don't have to pay any income tax. So if they withheld 200 bucks, well, yeah, I mean jump on TurboTax, knock out a quick tax return form and you'll get that full $200 back. But if there's $10 in there or, even better, hopefully zero, well then don't file one, because you don't have to file one. They're not going to get any money back or they're only going to get 10 bucks back. It's not worth your time. So, yeah, just let it go and move on.
Speaker 1:So if they have a W-2 below the standard deduction, you don't have to worry about it. Though, if they did have quite a bit of withholding, even a couple hundred dollars, that they want back, you can file to get the refund, and we recommend just doing that on TurboTax. So so simple.
Speaker 2:It's really easy TurboTax app or any of them, taxact actually. Hey, let's support some of the other people besides Intuit, so TaxAct any of them, most of them. You can take a picture with your phone and upload it into the app and it will automatically fill out everything for you. So, hey, we love making money, but this isn't one thing that y'all really need to hire us for.
Speaker 1:Absolutely not. You can totally do it. Now the second question on that is okay. So let's say they did and they filed a tax return, can you still claim them as a dependent?
Speaker 2:Yes. So you're saying if they made over $14,600, then yes, you do have to file a tax return and yes, you can still claim them as a dependent. I mean, certainly if they're a minor, but even if they're over 18, if they're still in college, and the way that that's determined is if you're providing over half of their support. So even if they're 19, but they're going to college and you're covering yeah, I mean sure, they made $15,000 on their W-2, so they have to file, but you're covering over half of their expenses, then yes, you can still claim them. You get a $500 credit for that. It's nothing to write home about, but you get that. And also you can claim the expenses for their college to get the credits. If you're claiming them as a dependent and you're the one actually paying those college fees, you can claim that as well. Now, that is a bigger benefit.
Speaker 1:So that's how you would do it if your child has a W-2, but it is different if they receive a 1099 for contract labor.
Speaker 2:Very different. If you get a 1099-NEC, then the threshold is only $400. Under that you get a $300 1099. Well, first of all, they shouldn't have sent one, because they're not supposed to if you make under 600, but sometimes people do.
Speaker 2:But if it's $400 or more of self-employed income, you're supposed to file a tax return to report that you still won't be subject to income tax if you're below that 14,000 or 15,000 for 2025 standard deduction amount, but you still have to pay self-employment taxes. So let's just say you make a flat $1,000. Well, you'll have $153 in self-employment taxes to pay on that, even though you don't have to pay any income taxes.
Speaker 1:So fun.
Speaker 2:Very fun. There are some exclusions for that, for doing work for your church. I know, for example, when I was in high school I played guitar for a church and they paid me a little bit and it might have been over $400, but I was exempt because I was working for a church. But there's not very many exemptions.
Speaker 1:Mostly, if you get that 1099 and it's over $400, you have to file. And then the other question, follow-up question for that was okay, my kid made $800, but they had more than that in expenses or they had a bunch of expenses. So how does that play into it?
Speaker 2:So in that case they won't end up getting taxed on that, but they still have to file to prove that they didn't have profit.
Speaker 1:So they're just getting taxed on the profit. So the self-employment tax is applied to the profit. So if really they made nothing, then they're not going to have to pay anything.
Speaker 2:Right, that's a great idea. I mean, that's a great point. Let's go back to my $1,000 example. You get $1,000, 1099. You go and file, but you did have expenses, so you're not going to have 153 in self-employment taxes. Now you're going to have $1,000 worth of expenses and now you have zero profits, so there's zero tax. But you still have to file a tax return because the IRS doesn't get a 1099 for your expenses, they only get a 1099 for your income. So until you file your tax return, they assume that all you had was a thousand of income and zero expenses.
Speaker 1:So, long story short, if they do have a 1099, not a W-2, then they do have to file the tax return if it's over $400, which makes no sense to me, considering you only send them out if it's over $600. So, anyways, also make sure to put expenses on there. If they had mileage or anything like that, it definitely adds up and it would reduce what they're paying in self-employment taxes. So you are able to add those in on the tax return, but you have to file the tax return to add those in.
Speaker 2:Right, there's almost no situation where you have a 1099 and absolutely no expenses, I mean, unless you're working from home, I guess. Even then you might have home office.
Speaker 1:And then you have home office expenses maybe, but absolutely there's always almost always some mileage or something. So just make sure that you are adding anything that they had in there. I know a lot of kids do like reffing or being a lifeguard or something, and then they have to get certifications on all of that. So make sure that you deduct anything like that that they had to pay for out of pocket to make that 1099 income. I think that wraps it up for those questions. Those are some really good questions and, as always, it depends on the situation. If you found this episode helpful and you think somebody else could use it, we would really appreciate if you would share it with somebody that you know. And until next time, thank you so much for listening to.
Speaker 2:What your CPA Wants you To Know.
Speaker 1:Podcast.
Speaker 2:This podcast is intended to provide accounting and tax information for educational purposes only. All tax situations are unique and should be handled with the assistance of a tax professional.