Taxpayer asks:
My son wants to know when he’ll have to file for taxes, he started mowing lawns this summer and is getting paid $25 per yard.
Taxgirl says:
Wow, I feel old. I used to get paid $10/yard for biggish yards in the country. *sigh*
Whether your son will have to file and pay depends on a lot of things. The two most important issues are his age and exactly how many of those yards he mows (his income).
The so-called “kiddie tax” is a term to describe when a child may be taxed at his or her parents’ rate. It has been around for about 20 years now.
Here’s how it works: for 2008, children under 19 and full-time students under 24, can rack up to $1,700 in unearned income, meaning income such as dividends and interest on investments (not wages) before the kiddie tax kicks in. The first $850 is exempt from taxation and the next $850 is taxed at the child’s income tax rate. But. Unearned income over $1,700, tax is computed at the parent’s tax rate.
Earned income (wages or pay for, say, mowing the grass) is always taxed at the child’s tax rate. However, if the child only has earned income – and that income is less than $5,450 in 2008 – the child does not need to file a return and there is no income tax due.
As a parent, you may opt to include your child’s income on your own return (unless your child is required to file a separate return). Before you rush to include your child’s income on your personal return, don’t forget that this would add to your own adjusted gross income. While you may consider it the same pile of money for purposes of paying the tax, it can subject you to phase-outs or other limits.
Before you go: be sure to read my disclaimer. Remember, I’m a lawyer and we love disclaimers.
If you have a question, here’s how to Ask The Taxgirl.
