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Bankrate's 2009 Tax Guide
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A tax tip a day plus an array of tax tools, terms and training will help you through filing and beyond.
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Who has to file taxes?
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The IRS also has different rules for dependents who earn money. And even though it's children we're usually talking about, the IRS doesn't make it easy, setting different earning standards for the two types of income, unearned or earned, that trigger filing requirements.

Generally, a child must file a return and pay tax due. But the amounts that trigger the filing depend on the type of income:

  • Earned, generally characterized as a salary, wages or tips.
  • Or unearned, which includes investment interest or dividends, capital gains, unemployment benefits and some trust distributions.

If a child (or any unmarried dependent younger than 65) has unearned income of more than $900, that person has to file. A return is also required if the dependent's earned income is more than $5,450.

What if a dependent has both earned and unearned income but doesn't reach the required filing amount for either? In this case, you must look at the gross income, that is, the total of both earned and unearned amounts, and make a couple of evaluations.

In these cases, a dependent has to file if his or her gross income exceeds either $900 or if the dependent's earned income (up to $5,150) plus $300 is more than that $900 amount.

For example, Jim, a 15-year-old who lives with his parents and is claimed as a dependent on their tax return, received $700 in interest last year and was hired to do odd jobs at his local youth center, for which he earned $850. When Jim's gross income, the total of his earned and unearned money, is considered, he must submit a return because the total came to $1,550 and that is more than $1,150, the filing trigger established by adding the $850 earned income plus $300.

While young Jim's income only had to be more than one trigger to require that he file a return, his gross earnings actually exceeded both the $900 unearned income filing amount and the earned income amount ($850 plus $300, or $1,150).

Don't forget about self-employment earnings, whether you're a teenager running a lawn service or an adult with a 10-person manufacturing operation. This money counts toward determining if you have to file a return, regardless of whether it was your sole source of income or just an occasional side job to make a little extra cash.

If your annual gross self-employment income is at least as much as the income level for your filing status, you have to send in a 1040 and Schedule C or C-EZ reporting your earnings. And remember to file a Schedule SE to pay self-employment tax if your net earnings exceed $400.

When it pays to file
For those few who don't legally have to file, it sometimes pays to send in a return anyway.

This is the case for individuals who don't earn much but might be eligible for the earned income tax credit. This benefit is available to qualified individuals even if they owe no tax, meaning they would get money back from the federal government. Many people think the credit is available only to parents. It's not. But the credit amount is greater for eligible low-wage taxpayers with children.

Plus, the IRS says that most individual taxpayers are due a tax refund. But the only way they can get that cash is to send in a 1040, 1040A or 1040EZ.

You can check out the filing requirements section of IRS Publication 17 for more details on specific filing circumstances.

-- Updated: Jan. 6, 2009
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