Overview

Dependents (usually children or qualifying students) must check their own income to decide whether to file a federal return — parents’ household income doesn’t eliminate a dependent’s filing requirement. The IRS sets specific thresholds for unearned income (investment income) and total income that trigger a filing obligation; these rules also interact with the “kiddie tax” and other special reporting rules. See IRS Publication 501 for full details. (IRS Publication 501: https://www.irs.gov/publications/p501)

Key 2023 thresholds and rules

  • Unearned income threshold: A dependent generally must file if their unearned income (interest, dividends, capital gains, etc.) is more than $1,250 for 2023. (IRS Publication 501)
  • Earned income / standard deduction: A dependent must file if their earned income alone exceeds the standard deduction for a single filer ($13,850 in 2023).
  • Gross income rule: A dependent must file if their gross income is greater than the larger of (a) $1,250 or (b) their earned income plus $400 (up to the regular standard deduction). This is the most common test when a dependent has both earned and unearned income. (IRS Publication 501)

Kiddie tax and Form 8615

If a child has significant unearned income, the “kiddie tax” rules can apply and may require Form 8615 to compute tax at the parents’ tax rate on some of the child’s income. That filing requirement and tax calculation are separate from whether the child must file at all. See Form 8615 and its instructions for the filing triggers and worksheet. (Form 8615: https://www.irs.gov/forms-pubs/about-form-8615)

Practical examples (tax year 2023)

  • Example A: A 17-year-old has $1,300 in bank interest and no earned income. Because unearned income > $1,250, the dependent must file.
  • Example B: A college student earns $3,000 wage income and also has $1,000 in investment gains. Their total ($4,000) is below the single standard deduction ($13,850), so filing may not be required unless the gross-income test (earned income + $400) is exceeded — in this case earned income + $400 = $3,400, and gross income $4,000 is greater than $3,400, so filing is required.

Filing options and related forms

  • Form 8615: Use this if the kiddie tax applies to calculate tax at parents’ rates.
  • Form 8814: Parents can, in limited cases, elect to report a child’s interest and dividends on the parents’ return instead of filing a separate return for the child. That election has trade-offs; review Form 8814 instructions before choosing. (Form 8814: https://www.irs.gov/forms-pubs/about-form-8814)

Record-keeping and practical tips

  • Track all 1099-INT, 1099-DIV and 1099-B statements received in the dependent’s name. These are the primary documents that trigger filing needs.
  • Consider custodial accounts (UGMA/UTMA) and 529 plans carefully — tax treatment of distributions and reported income varies. See our guide comparing custodial accounts and 529s for families. (Compare custodial accounts: https://finhelp.io/glossary/structuring-transfers-to-minors-utma-529s-and-trusts-compared/)
  • Watch the kiddie tax: when unearned income is material, the tax bill can jump if parents’ rates are higher.
  • Before filing, check whether the parent can use Form 8814 to include the child’s investment income on the parent’s return — sometimes simpler but not always tax-advantageous.

Action checklist

  1. Add up the dependent’s unearned and earned income separately.
  2. Apply the three tests above (unearned > $1,250; earned > $13,850; gross > larger of $1,250 or earned + $400).
  3. If filing is required, determine whether Form 8615 or Form 8814 applies.
  4. Keep copies of all 1099s and brokerage statements for three years.

When to get professional help

If a dependent’s investment income includes large capital gains, investment sales across multiple accounts, or if the kiddie tax seems likely to apply, consult a tax professional to model filing options and potential tax owed. In my work with families, early record-keeping and running a quick tax estimate avoid surprises.

Internal resources

Authoritative sources

Disclaimer

This article is educational and does not replace personalized tax advice. For guidance tailored to your family’s situation, consult a qualified tax professional or the IRS resources linked above.