I'm not sure what your question is. First of all, understand that when the screens in TurboTax say "you" they are talking to the taxpayer, even if the taxpayer is only 3 years old. When you start a child's tax return TurboTax says "IF your parents report your income on their return...." But in your case, if I understand correctly, you are not reporting the children's income on your tax return, so they do have to file their own tax returns. It makes no difference whether they have income from working. The corollary of what TurboTax says is: IF your parents do not report your income on their return then you (the child) must file your own tax return.
The parent may or may not have a choice about reporting the child's income. If the child has capital gains or losses from investment sales, there is no choice. All of the child's income must be reported on the child's own tax return.
If all of the conditions for reporting the child's income on the parent's tax return are met, then the parent does have a choice. If the parent chooses to report the child's income on the parent's return, the child does not have to file a separate tax return. If the parent chooses not to report the child's income on the parent's return, then the child is required to file a separate tax return. As I said before, my recommendation is to never report the child's income on the parent's tax return.
At the risk of causing more confusion, I want to point out an error on the TurboTax screen that contains the sentence you quoted. The first line of that screen says (again talking to the child) "Since you are under age 18, your parents may need to report some or all of your income on their tax return." That is absolutely not true. The parents never "need" to report the child's income on their tax return. They may or may not have the option to report the child's income, but they are never required to report the child's income on their tax return.
