J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

24.1 Filing Your Child’s Return

To discourage substantial income splitting of investment income between parents and minor children, the tax law has complicated income reporting for parents and children by—

1. Imposing a “kiddie tax” that taxes a child’s investment income over an annual floor ($1,900 for 2012) at the parent’s tax bracket. The kiddie tax applies not only to children under age 18, but also to most 18-year-olds and students under age 24 (24.2).

2. Barring a dependent child (21.1) from claiming a personal exemption on his or her own tax return.

3. Limiting the standard deduction for a dependent child who has only investment income. For 2012 the deduction is $950 (13.5).

Does your child have to file?

For a child who can be claimed as a dependent either as a qualifying child or a qualifying relative (21.1), the income filing threshold for 2012 is generally $950. If your dependent child has gross income (earned and investment income) of $950 or less for 2012, he or she is not subject to tax and does not have to file a tax return.

A 2012 return must be filed for a dependent child with investment income exceeding $300 and gross income of more than $950. If a dependent child has salary or other earned income but no investment income, a return does not have to be filed unless such earned income exceeds $5,950 in 2012. If your child’s only income is from interest and dividends, you may be able to make an election to report the income on your own return (24.4).

Although ...