Carrie Schwab Pomerantz
(SET ITAL) Dear Carrie: My daughter is 16 and has her first paying job. Does she need to file a separate tax return? -- A Reader (END ITAL)

Dear Reader: Congratulations to your daughter -- and to you. A first job is an important milestone for both kids and parents. It's a step toward independence and personal responsibility for your daughter. And it's an opportunity for you to teach her some financial realities.

Taxes are definitely a part of that financial reality. So I'll first discuss the parameters for filing a tax return. Then I'd like to get into ways you can help your daughter learn to manage her money wisely -- which, to me, is the most important lesson of all.


Whether or not your daughter needs to file a separate tax return depends on three basic factors:

1. Is she considered a dependent by the IRS?

2. How much income does she have?

3. What type of income does she have?

The IRS considers a child who is under 19, or under age 24 and a full-time student, or permanently disabled at any age to be a dependent. Your daughter is 16, so that's one down. Now you need to look at her income, both the amount and type.

Here's where it gets more complicated because there are different rules and income limits for earned income from a job, unearned income from dividends, interest or investment gains -- or a combination of both. Plus, income limits can change yearly. To cover the bases, I'll list numbers for both 2013 and 2014.


This is pretty straightforward. A dependent only has to file a separate tax return if earned income is above the standard deduction -- $6,100 for 2013; $6,200 for 2014. So if your daughter earned $5,000, she wouldn't have to file.

But it could be a good idea to do it anyway. If her employer withheld federal income tax, she might be entitled to a refund. You don't want her to miss out on that. Plus, it's a good learning experience.


Unearned income is a different story. If a child has unearned income above $1,000 for 2013 (same for 2014), a tax return is required. But when dealing with unearned income only, you can choose to either file a separate return for your child or include that income on your own return. One caveat: If you include it on your return, it could boost you into a higher tax bracket -- and possibly higher tax rates.


The rules change again if a dependent has both earned and unearned income. In this case, you need to file a separate return if:

Carrie Schwab Pomerantz

Carrie Schwab Pomerantz is a Motley Fool contributor.

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