What are IRS rules and regulations concerning minors, their income, and taxes?

Question

in the state of CO

Answer 1

I will assume that you mean a child who is a dependent.

The child's income belongs to him and is not reported on the parents' income tax return (although the parents may choose to treat some investment income as their income, to avoid having the child file a tax return).

First, a dependent gets no personal exemption of $3,400 from his income.

Second, the standard deduction is different. If the child has $850 or more of unearned income (interest, dividends, capital gains), he must file a tax return and pay taxes. If the unearned income is greater than $1,700, the taxes on the income over $1,700 is taxed at the parents' rate.

If the child has only earned income, he must file a return and pay taxes when he earns more than $5,350. He gets no personal exemption, but other than that the tax rates are the same.

If he has both earned and unearned income, he must file a tax return when he has more than $300 in unearned income and his total income is more than $850. This results in some dependents paying taxes on income which is far below the nondependent standard deduction of $5,350.

Third, there are many tax benefits that are not available to dependents, such as education tax benefits, the Earned Income Credit, and the deduction for Health Savings Accounts.

There is much more, these are some major points.

Answer 2

IRS rules are for the whole country, not by state.

For earned income, it works just like anyone else, although if the minor is claimed as a dependent, they don't get an exemption for themselves. Unearned income, like investment income, has various treatments depending on the amount and on the age of the minor. Under some circumstances it's taxed at the parents rate.