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Reporting income for dependent students

Print Posted by Andrew Chan April 13, 2009 10:00 AM

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Can you tell me at what point does a teenager and high school/college student who earns income working part-time file income tax return even if he or she is listed as a dependent on parent's return? Is there a income threshold or "dependency" issue as to when to file? Thanks!

Children who are claimed as a dependent on their parent’s tax return are required to file a federal tax return for 2008 if the child:

1) has over $900 dollars of unearned income (includes items such as taxable interest, dividends, investment income, etc.),
2) has over $5,450 dollars of earned income (includes items such as wages, tips, self-employment income, taxable scholarships, fellowship grants, etc.), or
3) has a combined unearned and earned income that exceeds the larger of $900 dollars or their earned income (up to $5,150 dollars) plus $300 dollars.

The limits above increase by $1,350 dollars if the dependent child is blind. The above dollar limits also assume that the dependent is not married. There are different requirements for dependents that are married or over the age of 65.

Your state’s filing requirements may be different. Here in Massachusetts, the filing requirements are determined based on a person’s residency and gross income. In general, residents and part-year residents who have earned or accrued more than $8,000 dollars of gross income from Massachusetts sources need to file a return. Nonresidents need to file if their Massachusetts gross income exceeds either the $8,000 dollar threshold or their prorated personal exemption, whichever is less.

Massachusetts taxpayers with low income may qualify for No Tax Status (NTS) or a Limited Income Credit (LIC) which will reduce or eliminate any tax liability. However, you will still need to file a Massachusetts tax return to qualify for the NTS or LIC.

In general, even if your child’s income limits do not meet the requirements noted above, it may be a good idea to file a return for your child to get a refund of any federal or state income tax withheld.

For more information about federal filing requirements, visit the IRS’ web site at http://www.irs.gov/individuals/

For Massachusetts filing requirements, visit the MA Department of Revenue’s web site at http://www.mass.gov

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About the contributors

Andrew Chan is the founder of Integrative Financial Advisors in Framingham. He provides comprehensive financial planning advice and investment management services. He has been an adviser for over 12 years and works with clients to integrate all aspects of their finances including investments, retirement, education funding, and tax planning.

Cheryl Costa is a principal at Forteris Wealth Management which is an independent, fee-only firm with offices in Framingham and Purchase, NY. She advises clients on investing, education funding, taxes and retirement planning. She has a BS from Worcester Polytechnic Institute and an MBA from Boston University and she is a Certified Financial Planner.

Jamie Downey has been an accountant for more than 14 years. He's a partner at Downey & Co. in Braintree. Prior to joining the firm, he served as a manager in the audit department of accounting firm KPMG.