It’s a fact of the taxpaying life: once you earn a certain amount of money, the IRS wants you to report it and pay taxes on it. Let’s cover the important questions: what kind of money are we talking about, how much counts, and on whose return should it be reported?

Earned vs. Unearned Income

If it’s unearned, that means you don’t owe taxes on it, right? Not quite.

  • Earnedincome means it was earned from jobs or self-employment. This is where pay from mowing lawns, babysitting, waiting tables and the like fits in.
  • Unearnedincome is interest from investments or other account holdings.

Either way, once your child reaches certain amounts, he or she becomes a taxpayer, and must file a return.

When Does a ChildHaveto File a Return?

Your childmustfile a return in any of the following situations:

  • Unearnedincome was more than $2,100.
  • Earnedincome was more than $6,300.
  • Gross income was more than the larger of:
  • $1,050 or,
  • Earned income (up to $5,750) plus $350.
  • The child owes any taxes, including Social Security and Medicare taxes.
  • The child had net self-employment income of $400 or more.

Even if your child may not have to file a return, it makes sense to do so in some situations:

  • Income tax was withheld.
  • The child qualifies for a refund. A common reason is qualifying for theAmerican Opportunity Creditor another refundable credit.

About Exemptions and Children’s Returns

It’s important to communicate and work with your child to make sure your child gets the dependency declaration right on their tax return. In order for you to be able to claim your child on your taxes, your child has to declare that they are a dependent. On 1040.com, the dependent question is on theName & Addressscreen. A mistake here can cause your own return to be rejected, costing you time and effort to amend your child’s return to get it right.

While we’re on the subject, your child also shouldn’t claim an exemption onForm W-4, the withholding certificate every employer asks for.

Who’s Responsible for Filing a Child’s Return?

If able to file, your child is responsible for filing his or her own return and for paying any tax, penalties and interest.

BUT:If your child is too young or can’t meet these responsibilities for any other reaon,youare responsible for filing on your child's behalf.

Tax Breaks for Students and New Grads

If you’re a college student (or the parent of one), you should know about some key tax breaks that are available to you when you do your taxes. Let’s take a look.

Tax Credits

There are two tax credits for higher education. They’re targeted at different types of students, so it pays to know the differences.

American Opportunity Credit

This credit is for students who are earning their undergraduate degrees. The credit is specifically limited to those expenses incurred in the first four years of college.

The credit is worth $2,500; the really good news is that $1,000 of that is refundable, meaning you could get that back as a refund even if you don’t owe any taxes. There’s an $80,000 income ceiling for single filers to qualify for the credit ($160,000 if you’re married filing jointly). If income is more than those amounts, the credit starts to decrease.

The credit is available through the 2017 tax year.

Lifetime Learning Credit

Where the American Opportunity Credit is limited to the first four years of college, the Lifetime Learning Credit has a wider availability. This credit can be used for graduate school, undergraduate expenses, even professional or vocational courses. Plus, there’s no limit to how many years you can claim it.

This credit, however, is nonrefundable, which means it’s limited to your tax liability. For example, if you qualified for the full $2,000 Lifetime Learning Credit, but had a tax liability of $500 for the year, you’d get a credit for $500.

Credits vs. deductions: What’s the difference?

Tax breaks for higher education come in two basic forms: credits and deductions.

  • Creditsreduce the amount of tax that you owe on your tax return.
  • Deductionsreduce the amount of income that’s considered taxable: less incometaxedmeans less incometax.

Deductions

The two deductions below are not available if you are filing married filing separately, or if someone else – such as a parent – claims you as a dependent on their return. Parents can still claim the deductions, provided they paid the expenses.

Tuition and Fees Deduction

If you don’t qualify for one of the education credits, you may still be able to deduct your tuition and fees. The deduction can cut your taxable income by up to $4,000. It’s taken as an adjustment to income, which means you can claim this deduction even if you don’t itemize deductions.

The income limit for this deduction is $80,000 for single taxpayers, or $160,000 for married filing jointly.

Student Loan Interest Deduction

This deduction helps to defray the interest you have on your student loans. This deduction can reduce your taxable income by up to $2,500. Like the tuition and fees deduction, it’s taken as an adjustment to income, so you can claim it even if you don’t itemize deductions.

One Per Customer, Please

One thing to remember, though: for each student, you can claimeitherthe American Opportunity Credit,orthe Lifetime Learning Credit,orthe tuition and fees deduction. The IRS won’t let you take more than one of these particular tax breaks for the same person on the same return.

But:Parents claiming two or more college kids as dependents on their return can claim one of these tax breaks for one student and another for a different student.

And but:You can still take the student loan interest deduction even if you’re claiming one of the other tax breaks.