Does a child with $4,000 of unearned income need to file a federal tax return?
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Yes, a child with $4,000 of unearned income in 2025 is required to file a federal tax return.
Legal Analysis
1. Definition of Unearned Income
Unearned income includes interest, dividends, capital gains, and other investment income, as well as certain trust distributions. It does not include wages or self-employment income.
2. Filing Thresholds for Dependents (2025)
For a dependent child, the filing requirement is based on the amount and type of income:
- Unearned income only: A dependent must file a return if their unearned income exceeds $1,350 in 2025.
- Earned income only: The threshold is the standard deduction for single filers, which is $15,750 in 2025.
- Both earned and unearned income: The child must file if their gross income exceeds the larger of $1,350 or their earned income plus $450, but not more than the standard deduction.
3. Kiddie Tax and Additional Filing Requirements
- If a child’s unearned income exceeds $2,700 in 2025, the “kiddie tax” applies, meaning the excess is taxed at the parent’s marginal rate, and the child must file Form 8615 with their return.
- The first $1,350 is not taxed, the next $1,350 is taxed at the child’s rate, and any amount above $2,700 is taxed at the parent’s rate.
4. Application to $4,000 of Unearned Income
- $4,000 is well above the $1,350 threshold for unearned income, so the child must file a return.
- Since $4,000 also exceeds the $2,700 “kiddie tax” threshold, the portion above $2,700 ($1,300) will be subject to tax at the parent’s rate, and Form 8615 must be filed.
5. Other Considerations
- If the child is a dependent, the parent may have the option to report the child’s unearned income on their own return using Form 8814, but this is only available if the child’s income is below a higher threshold (for 2025, $13,500) and meets other requirements.
- Filing is also required if any federal income tax was withheld, even if income is below the threshold, to claim a refund.
6. Conclusion
A child with $4,000 of unearned income in 2025 must file a federal tax return. Because the unearned income exceeds both the basic filing threshold for dependents ($1,350) and the “kiddie tax” threshold ($2,700), the child must file Form 1040 and attach Form 8615 to calculate the portion of tax at the parent’s rate.
Failure to file when required can result in penalties and interest.
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