Dependent Children

[mitchden1]

I have joint bank accounts with each of my dependent children. Each account has their respective social security numbers. I understand that the interest earned on their accounts has to be included on my income tax return. At what age, can my children start filing their own tax returns so the interest earned doesn't have to be included in my return?

[VolvoGirl]

They can file their own returns for it now. Is their ssn on the 1099Int?  See these two articles

How to pay the kiddie tax

https://ttlc.intuit.com/community/my-tax-return/help/how-do-i-report-and-pay-the-kiddie-tax/00/26055

Report child investments income

https://ttlc.intuit.com/community/investments/help/how-do-i-report-my-child-s-investment-income/00/2...

[rjs]

If the 1099-INT has the child's Social Security number, the interest is the child's income, not your income. It should be reported on the child's tax return, not your tax return, regardless of the child's age.

In some cases it is possible to report a child's income on the parent's tax return. The only advantage of doing that is that it's less paperwork. It will not save any tax, and in many cases you could end up paying more tax overall than if you filed separate returns for the children. You are never required to report a child's income on your tax return, regardless of the child's age.

If a dependent child's total investment income, including the interest, is $1,250 or less, and the child has no other income, the child is not required to file a tax return. In that case, the child's interest income does not get reported anywhere.

If a child's unearned income is $2,500 or less, that child does not pay kiddie tax. Unearned income is basically any income that is not from working.

The $1,250 and $2,500 figures are for 2023. For 2024 the amounts are $1,300 and $2,600. They are adjusted for inflation each year.

[mitchden1]

For a child, on unearned income (i.e. interest) between $1,250. and $2.500., I think the tax rate for the child is 10%. Anything more than that is taxed at the parents marginal tax rate. Is that correct?

Does that change when the child is no longer my dependent?

[Opus 17]

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@mitchden1 wrote:

For a child, on unearned income (i.e. interest) between $1,250. and $2.500., I think the tax rate for the child is 10%. Anything more than that is taxed at the parents marginal tax rate. Is that correct?

Does that change when the child is no longer my dependent?

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You can review the age and other requirements for the "kiddie tax" here.  In some cases, the child's interest income can be taxed at a higher rate up through age 23, even if you don't declare them as dependents.

https://www.irs.gov/taxtopics/tc553

Also, the rules for when you can include a child's income on your return are different than the rules for when a child pays the kiddie tax on their return (although they overlap in part, they also have differences). 

For now, if the child's only income is bank interest, you have the option of reporting it on your return or filing a separate return for each child.  If the child ever has income that is not interest and dividends (such as capital gains, or income from working), then all the child's income must only be reported on a return in the child's own name. 

[mitchden1]

I'm a little confused. If the child only has interest income and it's more than $2,500., do I report that income on my tax return or my child's tax return and use my marginal tax rate? What about between $1,250. and $2,500.

Thanks for your help.

[Hal_Al]

Q. If the child only has interest income and it's more than $2,500., do I report that income on my tax return or my child's tax return and use my marginal tax rate? What about between $1,250. and $2,500.

A. It's optional in both cases, up to $12,500 of income. 

If his only income is from interest and dividends, Alaska PFD or capital gains distributions shown on a 1099-DIV, there is a provision for entering it on your return, using form 8814. In TT, enter at Less common income / Child's income.

Back to your original question; what is the purpose of the joint account and who's money is it really? If you have control, your original statement ("I understand that the interest earned on their accounts has to be included on my income tax return") is correct and this will not change as the children get older. 

[rjs]

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@mitchden1 wrote:

I'm a little confused. If the child only has interest income and it's more than $2,500., do I report that income on my tax return or my child's tax return and use my marginal tax rate? What about between $1,250. and $2,500.

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You are never required to report the child's income on the parent's tax return. You have the option to do that if a number of conditions are met. You can always file a separate tax return for the child.

Paying tax on part of the child's income at the parent's tax rate ("kiddie tax") has nothing to do with whether the child's income is reported on the parent's tax return or a separate tax return. The rules for kiddie tax are the same no matter whose tax return the child's income is reported on.

The conditions to allow the child's income to be reported on the parent's tax return, and the conditions for applying kiddie tax, are completely different. Neither one affects the other.