What Deductions Can My Child Use When I'm Claiming Him on My Taxes but He Works?

Children often begin to work while their parents still claim them as a dependent. Parents can claim a child as a dependent until the child is 19, or 24 if he is a full-time student. A child that makes earned income above the limits set by the Internal Revenue Service must file a tax return, but his ability to claim tax deductions is more restricted than if his parents did not claim him as a dependent.

Filing Tax Return

If your child is not married or blind, then he must file a tax return if his earned income exceeds $5,800. If he is blind, he must file if his income exceeds $7,200. The rules are slightly different if your child has unearned income from investments, not just earned income from a job. If your child has both and his earned income plus $300 exceeds $950, or his earned income plus unearned income exceeds $5,800, he must file a tax return. In some cases, a parent still claims a child as a dependent even after he is married. If this pertains to your situation, then he follows the same rules as if he were single unless he is blind or his spouse files as married filing separately. If he is blind, he must file a tax return when his income is greater than $6,900. If his spouse files as married filing separately, then he must file if he earns any amount greater than $5.

Standard Deduction

Even if the parent claims the child as a dependent on her taxes, the child is eligible to claim a standard deduction when he files his own tax return. The child can claim a standard deduction of $950 or his earned income plus $300, whichever is greater. However, he cannot claim more than $5,800, unless he is blind or over the age of 65. For example, if Alan's parents claim him as a dependent and he earns $7,500 from his job and has unearned income from investments of $1,000, then he can claim a standard deduction of $5,800.

Other Deductions

Your dependent is eligible to claim other tax deductions if they are pertinent to earning his income or investments and he chooses to itemize. For example, if his employer asks him to run errands for work and does not reimburse him for gas mileage, the child can claim a tax deduction for the miles driven if he itemizes and all of his business deductions exceed 2 percent of his adjusted gross income. You can find his AGI on Line 38 of Form 1040. However, unless the child has a significant amount of income, claiming the standard deduction eliminates most of his tax liability and many of the itemized deductions will not pertain to him.

Effects of Dependency

Whether you claim the child as a dependent affects who gets to claim the personal exemption for the child. If you claim the child as a dependent, then you get the benefit of a dependency exemption on your tax return. This reduces the amount of federal taxes that your employer withholds throughout the year. However, if you do not claim the child as a dependent, he can claim his own personal exemption on his tax return. This reduces his tax liability and what his employer withholds throughout the tax year. A personal and dependency exemption is worth $3,700 per person in 2011. For example, if you are married and filing jointly and claim two dependents, you reduce your tax liability by $14,800 for 2011.

References

• IRS.gov: Publication 17 (2010), Your Federal Income Tax
• IRS.gov: Publication 929 (2010), Tax Rules for Children and Dependents
• "Income Tax Planning for Financial Planners"; Thomas Langdon, et al.; 2010
• IRS.gov: "In 2011, Many Tax Benefits Increase Slightly Due to Inflation"