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Ask the taxgirl: Kids, Income and Filing Taxes

July 7, 2012 · 1 comment

Taxpayer asks:

A not for profit hosted a competition in which my 11 yr old daughter won $500.

In order to write her the check, They have asked to have her complete a W-9.

I thought that since:

1. The value is below $600
2. She is a child that will not be filing a return

That she would not need to provide her SSN to these folks.

Do I need to provide them a W-9 on her? And if they chose to 1099MISC her for that amount, is there anything I need to do, or is the amount low enough that she would be exempt from filing a return?

taxgirl says:

This is a great question! There are a lot of issues here…

First, you’re absolutely right that a form 1099-MISC need only be issued when the amount is $600 or more. However, for bookkeeping purposes (and to protect them from potential penalties later on), many companies request that you complete a form W-9 prior to receipt of any money. From my perspective, there’s no harm in it and if it were my daughter, I wouldn’t fight it since I don’t know what it gets you (other than some agita and perhaps whining from your daughter). Keep in mind that the company doesn’t know that your child might not have to file a return since the rules vary depending on the type and amount of income (keep reading).

Second, whether a form 1099-MISC is issued or not, money paid out as a prize or award is generally reportable even if it’s not taxable. Be sure not to confuse the two.

If your daughter has earned income of less than $5,700 for the current tax year, she does not have to file a federal income tax return or pay federal income tax so long as she is single (as I hope she would be at age 11) and under the age of 65. Earned income includes wages and salary: it generally includes prizes and awards assuming that you have to do something to win.

The rules are different for unearned income like dividends and interest – but I’ll save those for another time so as not to confuse the issue.

Sometimes it makes sense for kids to file anyway even if the law doesn’t require them to (such as, for example, if there was withholding or if she would be entitled to a tax credit). She’ll also need to file if she owes other taxes (check your the tax requirements for your state and municipality to be safe).

Finally, remember that many of these rules apply to children who are dependents. Those who are not dependents because of their age or filing status or who are emancipated, like the ever adorable Drew Barrymore, will file differently.

For more about dependents, taxable income and the kiddie tax, check out my ebook at Amazon.com; through Hyperink or at Barnes and Noble. If you have specific questions or circumstances that might be a little out of the ordinary, be sure to check with your tax professional for more details.

Be sure to read my disclaimer… Remember, I’m a lawyer and we love disclaimers. But you know who loves them more? My malpractice carrier. Consider yourself warned.

If you still have a question, check out these tips before you “ask the taxgirl.”

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{ 1 comment… read it below or add one }

1 lewis October 9, 2012 at 8:48 pm

Have not filed for 2009, 2010, 2011. Had a loss of 23,500 in 2009 which wiped out my tax liability. Have I loss my carryover NOL from 2009 to 2010 or 2011?
Thank you

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