Filing obligation of a 6 year old and standard deduction

Aug 18, 2014

Somebody recently asked if a 6-year-old US citizen, living abroad, who receives minimal unearned income on his bank account was required to file U.S. tax returns and standard deduction. Here is our response – feel free to ask your own question in the comment section below:

The general rule for all U.S. persons

As a general rule, U.S. persons (all U.S. citizens are U.S. persons) need to file a U.S. tax return if their income (unearned or earned, doesn’t matter at this point) exceeds $10,000. Why $10,000? Because that’s the sum of the standard deduction of $6,100 and the personal exemption of $3,900. Based on these deductions from income to taxable income, the taxpayer wouldn’t have to pay taxes anyway. Thus he doesn’t have to provide a tax return. They still might voluntarily file a return – there are some valid reasons to do that, but none of which seem to apply to a 6-year-old.

The exception to the rule

Dependents are not entitled to their personal exemption because somebody else (their parents) already used it. Also, their standard deduction is limited. If all their income is unearned, the standard deduction is $1,000 (leaving aside the case of married or blind dependents). It’s more if they also have earned income. Hence, they would need to file if they have more than $1,000 of unearned income.

Exception to the exception: Parents may report the children’s income on their own return if all of the child’s income was from interest/dividends/capital gain distributions and was less than $10,000 (that’s for children under age 19 or under age 24, if a full-time student).

On a related note: If he receives investment income of more than $2,000, something usually referred to as the “kiddie tax” would apply, meaning that your tax rate would apply. This was to prevent parents from putting their investments in the child’s name and paying a tax of 10% when their own marginal rate was 30%. That’s an additional form that doesn’t change what I described above (i.e. it can be attached either to the parent or the children’s return).

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