As others have said:
1. She does not need to file a tax return, unless she needs a refund of income tax withheld (box 2 and/or box 17 of the W-2).
2. She is still your dependent regardless of her income.
EXPLANATIONS:
TAX RETURN FILING
You do not report his/her income on your return. If it has to be reported, at all, it goes on his own return. If your dependent child is under age 19 (or under 24 if a full time student), he or she must file a tax return for 2022 if he had any of the following:
- Total income (wages, salaries, taxable scholarship etc.) of more than $12,950 (2022).
- Unearned income (interest, dividends, capital gains, unemployment, taxable portion of 529 distribution) of more than $1150 (2022)
- Unearned income over $400 (2022) and gross income of more than $1150 (2022)
- Household employee income (e.g. baby sitting, lawn mowing) over $2300 ($12,950 if under age 18)
- Other self employment income over $432, including money on a form 1099-NEC
Even if he had less, he is allowed to file if he needs to get back income tax withholding. He cannot get back social security or Medicare tax withholding.
In TurboTax, he indicates that somebody else can claim him as a dependent, at the personal information section.
BEING A DEPENDENT
There are two types of dependents, "Qualifying Children"(QC) and Other ("Qualifying Relative" in IRS parlance even though they don't have to actually be related). There is no income limit for a QC but there is an age limit, student status, a relationship test and residence test.
A child of a taxpayer can still be a “Qualifying Child” (QC) dependent, regardless of his/her income, if:
- He is under age 19, or under 24 if a full time student for at least 5 months of the year, or is totally & permanently disabled
- He did not provide more than 1/2 his own support. Scholarships are excluded from the support calculation
- He lived with the parent (including temporary absences such as away at school) for more than half the year
So, it doesn't matter how much he earned. What matters is how much he spent on support. Money he put into savings does not count as support he spent on himself.
The support value of the home, provided by the parent, is the fair market rental value of the home plus utilities & other expenses divided by the number of occupants.
