Teenagers and Taxes: Does my teenager have to pay child tax on investment income?

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If your teen earns investment income, such as interest and dividends from stocks or bank accounts, and that amount totals more than $2,200, they are subject to the same income tax as adults. Referred to as the “child tax,” this law was introduced to prevent parents and guardians from transferring dividend-paying stocks and investments to their children when seeking to avoid taxes or pay a tax rate. inferior.

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However, if your teen’s interest, dividend, and capital gains distributions are less than $11,000 in 2021, you can claim the unearned income on your tax return instead of asking your child or teen to complete their own declaration. This law – and the associated income thresholds – apply to teenagers aged 18 or younger or young adults aged 19 to 24 living at home and attending college full-time.

It may be a good idea to claim your teen’s investment income on your tax returns if they don’t have other income and wouldn’t need to file a federal or state tax return if not. is for his investment income. You can save the time and potential cost of tax preparation.

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Any income over $2,200 is taxed at the same rate whether you claim the money or they do. And while you may have tax credits, deductions, and tax deductions to offset the amount of non-investment income tax (NIIT) owed, your child probably doesn’t. If they filed separately, they could have a tax bill due by April 18, 2022.

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About the Author

Dawn Allcot is a full-time freelance writer and content marketer with interests in finance, e-commerce, technology, and real estate. His long list of publishing credits includes Bankrate, Lending Tree and Chase Bank. She is the founder and owner of GeekTravelGuide.net, a travel, technology and entertainment website. She lives in Long Island, New York, with a veritable menagerie that includes 2 cats, a rambunctious kitten and three lizards of different sizes and personalities – plus her two children and her husband. Find her on Twitter, @DawnAllcot.