Taxes on the income received by children
When children under 18 receive income, they are taxed separately from the income of their parents. This rule is applied to wage income, to other earned income and to capital income.
However if in reality the child is not the party who has done the work the income will be taxed as the parents' income.
As the guardian, you can manage the taxes of an underage child in MyTax.
You can use MyTax to:
- request a tax card
- check the tax return and make additions to it
The Tax Administration determines that you are the guardian of your child based on the Population Register’s basic register data. As a guardian, you do not need a separate authorisation for managing your child’s tax matters.
Example: A one-year-old poses for advertising photo shoots and the company pays a fee for it. This income is taxed as that of the parents, because for all practical purposes it was the parents who did the work and there could realistically be no work effort that the child performed.
Children under eighteen years of age are minor children, the exact definition being that their age must be no more than 17 on the first day of the tax year. The number of children has tax implications in cases of divorce or separation because parents who pay maintenance receive tax deductions for it. For tax purposes, children of a spouse are equated with the individual taxpayer's own children and so are adopted children, the spouse's adopted children and foster children.
We receive information on children from the Population Register System, therefore you do not have to report the birth of a child to the tax office.
Children may be earners of earned income since they are born. Examples of the types of income that can be paid to young children include family pension. However, when wage income and similar types of earned income are in question, it can be deemed as belonging to the child only if he or she has realistically done some active work or participated in the work for which compensation was paid. For example, compensation for having a one-year-old pose in a photo shoot for advertising will be taxed as income received by the parents not the one-year-old, because they were the people who actually did the work.
Children may also be paid capital income if they are owners of assets or property that generates it. Examples of these situations include the case that corporate stock or shares in housing companies were given to a young child as a gift. The yield from these securities is dividends or rent, which the tax office treats as taxable capital income.
The rules governing tax deductions are the same for children and adults. If the total of deductions turns out higher than the total of taxable income, the negative difference cannot be transferred to the parents as an extra deduction against their taxes. For example, if there is a deduction due to interest expenses paid by the child it will only concern the tax assessment of the child, not his or her parents.
Gifts or donations to children
Cash and other assets are commonly given to children under eighteen. It is permissible for the same donor to give a total that stays below €5,000 (€4,000 before 1.1.2017) in the course of three years without any tax implications. However, if the value of that total reaches €5,000 (€4,000 before 1.1.2017) or is higher, the beneficiary must pay gift tax.
If a child under 18 is given a gift of unusually high value, he or she must have a guardian appointed by the Local Administrative Court — maistraatti; magistraten — (alternatively appointed by a court of law). The guardian must then receive the gift on behalf of the child. If the child has a guardian and his or her parents have given a valuable gift, it will be treated in the child's tax assessment as the child's income, and as part of the child's wealth.
To give a gift can be approved by the tax authorities also in cases where a donor has deposited (or transferred) money in a bank to a child beneficiary, and no clause of retention of the right to control the use of the amount has been included in the contract. In such a case the donor may have
- Paid in money or corporate securities or other moveable property into a bank;
- Paid in money as a deposit into an asset-management account;
- Transfer a set of book-entry securities to the book-entry account of a child beneficiary, to be recorded as a holding of securities now owned by the child.
There must be a documented transfer of the deposit by the bank or the securities management company, showing that the beneficiary has received it as a gift.
Gifts and the income derived from them are treated as belonging to the beneficiary under 18 years of age (and as assets belonging to him or her) also in cases where the fact of giving the gift has actually happened even if the above formal requirements have not been met. However, if the fact of giving the gift is not real and lacks the substance of giving a gift, the income must be treated as the parent's income.
Receiving financial support or maintenance
To receive maintenance from another parent is not treated as taxable income. In other words, the beneficiary of financial support, alimony or child maintenance does not have to include it in his or her taxable income. The money must be paid to the payer's own child who is living in another household due to divorce or due to academic studies.