Dependent Filing Rules

• The main distinction between the filing rules for dependents and other taxpayers is that dependents cannot claim a personal exemption. As a result, the income threshold for filing a tax return is much lower in that a return is required when you earn income in excess of the standard deduction amount for a single taxpayer. However, this only applies to the income that you earn from providing services, such as through employment or as an independent contractor. If you earn even minimal investment income such as dividends and interest, your obligation to file a return kicks in much sooner. The amount can change each year, but recently, as of April 2011, the IRS requires a tax return when a dependent earns more than just $950 of this type of investment income.
  
  

65 or Blind

• If you are 65 and older, or are legally blind, the IRS increases the income threshold for purposes of filing a return since your standard deduction is higher. In 2011 for example, the standard deduction for a typical single taxpayer is $5,800; however, if you are a dependent who is at least 65 or blind, then you can claim a deduction of $7,250. Because you are a dependent, this threshold only applies to income you earn from providing services. If you receive investment income during the year, the income threshold for filing a return decreases significantly. In 2011, the threshold for investment income is $2,400.
  
  

Child's Tax Return

• If you claim your children as dependents, they are subject to the same tax filing rules; however, they may be too young to prepare a return themselves. In this case, you are responsible for filing the child's return. When you prepare it, the IRS allows you to sign it in place of your child, but you must make a notation that you only do so as the child's parent. As long as your child is under the age of 19, or under the age of 24 if a full-time student, you can elect to include their interest and dividend income on your own return if that is their only source of earnings. The election is only permissible if the child's total income is less than the threshold amount, which, as of April 2011, was $9,500.
  
  

Dependent Tax Disadvantages

• If you are claimed as someone's dependent, then you cannot claim a personal exemption on your tax return, which results in more of your income being taxed. In addition, when you have significant income from interest and dividends, even the amount of your standard deduction is significantly reduced, which subjects even more of your income to tax. Unfortunately, the rules require this treatment since you are eligible to a dependent to another taxpayer.