Child Income Tax Rules in Puerto Rico
Child income in Puerto Rico is subject to specific tax rules that vary depending on the type of income, the child’s age, and whether the child is a full-time student. Parents and guardians should understand both Puerto Rico and U.S. federal tax treatment to comply with filing requirements and avoid unnecessary penalties.
How Child Income is Treated in Puerto Rico
Puerto Rico’s tax code differentiates between earned and unearned income for children under 18. It also includes exemptions for full-time students and guidelines for attributing income to parents when children are minors.
Unearned Income (Interest, Dividends, Royalties)
Any unearned income received by a child under the age of 18, such as interest, dividends, or royalties, is attributed to the parent’s gross income and is taxable at the parent’s rate in Puerto Rico. Although technically received by the child, the Puerto Rico Internal Revenue Code assigns the tax obligation to the parent if it is not otherwise paid.
If the parents share joint custody, 50% of the child’s unearned income is assigned to each parent for tax purposes.
Note: This rule does not apply to earned income. It specifically affects passive income not derived from services rendered.
Earned Income (Wages, Salaries, Self-Employment)
If a child receives earned income, different thresholds and exemptions apply:
Children under 16 must report earned income if it exceeds $9,000 in a calendar year.
Full-time students between 16 and 26 years old qualify for a Special Exclusion: the first $40,000 of earned income is exempt from Puerto Rico income tax, provided they meet student status requirements.
This exclusion allows many students to work during the year without incurring tax liability on a large portion of their income.
Federal Tax Treatment of Child Income
Under U.S. tax law, dependent children can earn up to the standard deduction (approximately $15,000 in 2025) without owing federal income tax, assuming no significant unearned income.
However, when a child has more than a certain amount of unearned income (e.g., dividends or capital gains), the “kiddie tax” applies. In that case:
A portion of the income is taxed at capital gains rates
The remainder may be taxed at the parent’s marginal tax rate
Parents can elect to include this income on IRS Form 8814, or the child may file a return using IRS Form 8615.
For example, if a 17-year-old receives $6,000 in dividends, this may be subject to tax at the parent’s rate depending on other income.
Dependency Rules and Tax Credits
In Puerto Rico, a parent may qualify for the Child Tax Credit (CTC) even if the dependent receives income, so long as the parent provided more than 50% of the child’s support. However, if the child is considered a qualifying relative and earns $3,300 or more in a year, they cannot be claimed as a dependent under current tax rules.
Claiming the Child Tax Credit (CTC)
In Puerto Rico, a parent may qualify for the Child Tax Credit (CTC) even if the dependent receives income, so long as the parent provided more than 50% of the child’s support. However, if the child is considered a qualifying relative and earns $3,300 or more in a year, they cannot be claimed as a dependent under current tax rules.
Need Guidance on Child Income Tax Filings? At Saavedra CPA, we help families ensure compliance while maximizing available exclusions and credits.