Other Filing Requirements

Some dependents may have to file a tax return even if their income is below the amount that would normally require them to file a return.

A dependent must file a tax return if he or she owes any other taxes, such as:

1. Social security and Medicare taxes on tips not reported to his or her employer,
2. Uncollected social security and Medicare or railroad retirement taxes on tips reported to his or her employer or on group-term life insurance,
3. Alternative minimum tax,
4. Tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account, or
5. Recapture taxes, such as the tax from recapture of an education credit.

A dependent must also file a tax return if he or she:

1. Received any advance earned income credit payments from his or her employers in 2002,
2. Had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes, or
3. Had net earnings from self-employment of at least $400.

Spouse itemizes.   A dependent must file a return if the dependent's spouse itemizes deductions on a separate return and the dependent has $5 or more of gross income (earned and/or unearned).

Who Should File?

Even if a dependent does not meet any of the filing requirements discussed earlier, he or she should file a tax return if either of the following applies.

1. Income tax was withheld from his or her pay.
2. He or she qualifies for the earned income credit or the additional child tax credit. See the tax return instructions to find out who qualifies for these credits.

By filing a return, the dependent can get a refund.

Responsibility for Child's Return

Generally, the child is responsible for filing his or her own tax return and for paying any tax, penalties, or interest on that return. If a child cannot file his or her own return for any reason, such as age, the child's parent or guardian is responsible for filing a return on his or her behalf.

Signing the child's return.   If the child cannot sign his or her return, a parent or guardian can sign the child's name in the space provided at the bottom of the tax return. Then, he or she should add: By (signature), parent (or guardian) for minor child.

Authority of parent or guardian.   A parent or guardian who signs a return on a child's behalf can deal with the IRS on all matters connected with the return.

In general, a parent or guardian who does not sign the child's return can only provide information concerning the child's return and pay the child's tax. That parent or guardian is not entitled to receive information from the IRS or legally bind the child to a tax liability arising from the return.

Third party designee.   A child's parent or guardian who does not sign the child's return may be authorized, as a third party designee, to discuss the processing of the return with the IRS as well as provide information concerning the return. The child or the person signing the return on the child's behalf must check the Yes box in the Third Party Designee area of the return and name the parent or guardian as the designee.

If designated, a parent or guardian can respond to certain IRS notices and receive information about the processing of the return and the status of a refund or payment. This designation does not authorize the parent or guardian to receive any refund check, bind the child to any tax liability, or otherwise represent the child before the IRS. See the return instructions for more information.

Designated as representative.   A parent or guardian who does not sign the child's return may be designated as the child's representative by the child or the person signing the return on the child's behalf. Form 2848, Power of Attorney and Declaration of Representative, is used to designate a child's representative. See Publication 947, Practice Before the IRS and Power of Attorney, for more information.

If designated, a parent or guardian can receive information about the child's return but cannot legally bind the child to a tax liability unless authorized to do so by the law of the state in which the child lives.

IRS notice.   If you or the child receives a notice from the IRS concerning the child's return or tax liability, you should immediately inform the IRS that the notice concerns a child. The notice will show who to contact. The IRS will try to resolve the matter with the parent(s) or guardian(s) of the child consistent with their authority.

Child's earnings.   For federal income tax purposes, the income a child receives for his or her personal services (labor) is the child's, even if, under state law, the parent is entitled to and receives that income.

If the child does not pay the tax due on this income, the parent may be liable for the tax.

Child's expenses.   Deductions for payments that are due to the child's earnings are the child's, even if the payments are made by the parent.

Example.   You made payments on your child's behalf that are deductible as a business expense and a charitable contribution. You made the payments out of your child's earnings. These items can be deducted only on the child's return.

Standard Deduction

The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the larger of:

1. $750, or
2. The individual's earned income plus $250, but not more than the regular standard deduction (generally $4,700).

However, the standard deduction for a dependent who is age 65 or older or blind is higher.

Certain dependents cannot claim any standard deduction. See Standard Deduction of Zero, later.

Table 2.   Use Table 2 above to figure the dependent's standard deduction.

Table 2. Standard Deduction Worksheet for Dependents

Example 1.   Michael is single, age 15, and not blind. His parents can claim him as a dependent on their tax return. He has taxable interest income of $800 and wages of $150. He enters $400 (his earned income plus $250) on line 1 of Table 2. On line 3, he enters $750, the larger of $400 or $750. Michael enters $4,700 on line 4. On line 5a, he enters $750, the smaller of $750 or $4,700. His standard deduction is $750.

Example 2.   Judy, a full-time student, is single, age 22, and not blind. Her parents can claim her as a dependent on their tax return. She has dividend income of $275 and wages of $2,500. She enters $2,750 (her earned income plus $250) on line 1 of Table 2. On line 3, she enters $2,750, the larger of $2,750 or $750. She enters $4,700 on line 4. On line 5a, she enters $2,750 (the smaller of $2,750 or $4,700) as her standard deduction.

Example 3.   Amy, who is single, is claimed as a dependent on her parents' tax return. She is 18 and blind. She has taxable interest income of $1,000 and wages of $2,000. She enters $2,250 (her earned income plus $250) on line 1 of Table 2. She enters $2,250 (the larger of $2,250 or $750) on line 3, $4,700 on line 4, and $2,250 (the smaller of $2,250 or $4,700) on line 5a. Because Amy is blind, she checks the box for blindness and enters 1 in box c at the top of Table 2. She enters $1,150 (the number in box c times $1,150) on line 5b . Her standard deduction on line 5c is $3,400 ($2,250 + $1,150).

Standard Deduction of Zero

The standard deduction for the following dependents is zero.

1. A married dependent filing a separate return whose spouse itemizes deductions.
2. A dependent who files a return for a period of less than 12 months due to a change in his or her annual accounting period.
3. A nonresident or dual-status alien dependent, unless the dependent is married to a U.S. citizen or resident at the end of the year and chooses to be treated as a U.S. resident for the year. See Publication 519, U.S. Tax Guide for Aliens, for information on making this choice.

Example.   Jennifer, who is a dependent of her parents, is entitled to file a joint return with her husband. However, her husband elects to file a separate return and itemize his deductions. Because he itemizes, Jennifer's standard deduction on her return is zero. She can, however, itemize any of her allowable deductions.

Dependent's Own Exemption

A person who can be claimed as a dependent on another taxpayer's return cannot claim his or her own exemption. This is true even if the other taxpayer does not actually claim the exemption.

Example.   James and Barbara can claim their child, Ben, as a dependent on their return. Ben is a full-time college student who works during the summer and must file a tax return. Ben cannot claim his own exemption on his return. This is true even if James and Barbara do not claim him as a dependent on their return.

Withholding From Wages

Employers generally withhold federal income tax, social security tax, and Medicare tax from an employee's wages. If the employee claims exemption from withholding on Form W-4, the employer will not withhold federal income tax. The exemption from withholding does not apply to social security and Medicare taxes.

Conditions for exemption from withholding.   An employee can claim exemption from withholding for 2003 only if he or she meets both of the following conditions.

1. For 2002, the employee had a right to a refund of all federal income tax withheld because he or she had no tax liability.
2. For 2003, the employee expects a refund of all federal income tax withheld because he or she expects to have no tax liability.

Dependents.   An employee who is a dependent ordinarily cannot claim exemption from withholding if both of the following are true.

1. The employee's total income will be more than the minimum standard deduction amount. This amount was $750 for 2002, but may be higher for 2003. Check the instructions for the 2003 Form W-4 for the correct amount.
2. The employee's unearned income will be more than $250.

Exceptions.   An employee who is age 65 or older or blind, or who will claim adjustments to income, itemized deductions, or tax credits on his or her 2003 tax return, may be able to claim exemption from withholding even if the employee is a dependent. For more information, see the discussions under Exemption From Withholding in chapter 1 of Publication 505, Tax Withholding and Estimated Tax.

Example.   Guy is 17 and a student. During the summer he works part time at a grocery store. He expects to earn about $1,000 this year. He also worked at the store last summer and received a refund of all his withheld income tax because he did not have a tax liability. The only other income he expects during the year is $275 interest on a savings account. He expects that his parents will be able to claim him as a dependent on their tax return. He is not blind and will not claim adjustments to income, itemized deductions, or tax credits on his return.

Guy cannot claim exemption from withholding when he fills out Form W-4 because his parents will be able to claim him as a dependent, his total income will be more than $750, the minimum standard deduction amount, and his unearned income will be more than $250.

Claiming exemption from withholding.   To claim exemption from withholding, an employee must write EXEMPT in the space provided on Form W-4. The employee must complete the rest of the form, as explained in the form instructions, and give it to his or her employer.

Renewing an exemption from withholding.   An exemption from withholding is good for only one year. An employee must file a new Form W-4 by February 15 each year to continue the exemption.

Part 2. Tax on Investment Income of Child Under 14

• Adjusted gross income
• Adjustments to income
• Alternative minimum tax
• Capital gain distribution
• Dependent
• Earned income
• Gross income
• Investment income
• Itemized deductions
• Net capital gain
• Net investment income
• Standard deduction
• Tax year
• Taxable income
• Unearned income

Two special rules apply to the tax on certain investment income of a child under age 14.

1. If the child's interest, dividends, and other investment income total more than $1,500, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. (See Tax for Children Under Age 14 Who Have Investment Income of More Than $1,500, later.)
2. The child's parent may be able to choose to include the child's interest and dividend income (including capital gain distributions) on the parent's return rather than file a return for the child. (See Parent's Election To Report Child's Interest and Dividends, later.)

For these rules, the term child includes a legally adopted child and a stepchild. These rules apply whether or not the child is a dependent.

These rules do not apply if:

1. The child is not required to file a tax return (see Filing Requirements in Part 1), or
2. Neither of the child's parents were living at the end of the tax year.

Which Parent's Return To Use

If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the investment income of a child under 14. For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends. The tax rate and other return information from that parent's return are used to compute the child's tax as explained later under Tax for Children Under Age 14 Who Have Investment Income of More Than $1,500.

Parents are married.   If the child's parents file separate returns, use the return of the parent with the greater taxable income.

Parents not living together.   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income.

For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in Publication 501.

Parents are divorced.   If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent.

Custodial parent remarried.   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Do not use the return of the noncustodial parent.

If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies.

Parents never married.   If a child's parents did not marry each other, but lived together all year, use the return of the parent with the greater taxable income. If the parents did not live together all year, the rules explained earlier under Parents are divorced apply.

Widowed parent remarried.   If a widow or widower remarries, the new spouse is treated as the child's other parent. The rules explained earlier under Custodial parent remarried apply.

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