Expert: Shirley McAllister, CPP, PHR - 4/4/2011

Question
Hi Shirley,
 I hope you can help me.  My daughter received a 1099-Misc form with her earnings (approx $3,200)listed on line #7 (non-employee compensation).  This was from a summer internship last year.  She also earned $2,700 from The Home Depot and received a W-2. Normally I would fill out a 1040EZ for her.  Do I need a regular 1040 and also must I fill out a Schedule SE?  She has no expenses for a Schedule C.  My daughter is also a DEPENDENT on MY 1040 if that makes a difference. (she was still a college student in 2010.) I keep getting conflicting instructions from different websites as to how to file my daughter's income. Also, how do I file the state income tax?    Thank you for your help

Jill from New Jersey

Answer
Children under 18 who earn less than $9,000, according to IRS 2010 tax rates, may include income on their parent's tax return. Parents must gather all the earnings, interest and capital gains from employment, savings accounts and investment accounts to determine if the aggregate value is less than this threshold. If it does, when filing your 1040, you will include Form 8615 that accounts for the income on the minor's Social Security number. The concern with filing your child's income on your return is that you are probably at a higher tax bracket than your child. The money can be taxed as high as 35% even though earning less than $8,500 would generally mean a 0% tax bracket for most tax payers. For parents who are divorced or filing taxes separately, you must file the child's income with the parent who has the higher adjusted gross income.


If your child earned less than $9,000 in the year from a summer job, part-time income and college savings investments, then they can still file for their own return. They would use Form 8814 to account for minor income but be treated at a lower tax bracket appropriate for their actual income. If the minor earned more than $9,000, they can file a 1040EZ. When minors file their own taxes, they are still considered a dependent and able to be claimed. Minors with divorced parents who have separate savings and investment accounts find this is a good method to properly account for all income in one return. Minors are able to take deductions such as charitable contributions on their own return.

A 1099 simply states income earned for which no income tax deductions have been made. It is added as earned income.

Shirley