Tax on child's investment income.(p54)
Form 8615 is required to figure the tax for a child with investment income of more than $1,800 if the child:
- Was under age 18 at the end of 2008,
- Was age 18 at the end of 2008 and did not have earned income that was more than half of the child's support, or
- Was a full-time student over age 18 and under age 24 at the end of 2008 and did not have earned income that was more than half of the child's support.
The election to report a child's investment income on a parent's return and the special rule for when a child must file Form 6251 also now apply to the children listed above. For more information, see Tax on investment income of certain children
under General Information
If you are a U.S. citizen with interest income from sources outside the United States (foreign income), you must report that income on your tax return unless it is exempt by U.S. law. This is true whether you reside inside or outside the United States and whether or not you receive a Form 1099 from the foreign payer.taxmap/pub17/p17-032.htm#TXMP20f534d0
This chapter discusses the following topics.
- Different types of interest income.
- What interest is taxable and what interest is nontaxable.
- When to report interest income.
- How to report interest income on your tax return.
In general, any interest you receive or that is credited to your account and can be withdrawn is taxable income. Exceptions to this rule are discussed later in this chapter.
You may be able to deduct expenses you have in earning this income on Schedule A (Form 1040) if you itemize your deductions. See chapter 28
You may want to see:
Publication 537 Installment Sales 550 Investment Income and Expenses 1212 Guide to Original Issue Discount (OID) Instruments Form (and Instructions) Schedule B (Form 1040) : Interest and Ordinary Dividends Schedule 1 (Form 1040A) : Interest and Ordinary Dividends for Form 1040A Filers 3115: Application for Change in Accounting Method 8815: Exclusion of Interest From Series EE and I U.S. Savings Bonds Issued After 1989 8818: Optional Form To Record Redemption of Series EE and I U.S. Savings Bonds Issued After 1989taxmap/pub17/p17-032.htm#en_us_publink100032596
A few items of general interest are covered here.
Recordkeeping. You should keep a list showing sources and amounts of interest received during the year. Also, keep the forms you receive that show your interest income (Forms 1099-INT, for example) as an important part of your records.
Part of a child's 2008 investment income may be taxed at the parent's tax rate. This may happen if all of the following are true.
- The child had more than $1,800 of investment income.
- The child is required to file a tax return.
- The child was:
- Under age 18 at the end of 2008,
- Age 18 at the end of 2008 and did not have earned income that was more than half of the child's support, or
- A full-time student over age 18 and under age 24 at the end of 2008 and did not have earned income that was more than half of the child's support.
- At least one of the child's parents was alive at the end of 2008.
- The child does not file a joint return for 2008.
A child born on January 1, 1991, is considered to be age 18 at the end of 2008; a child born on January 1, 1990, is considered to be age 19 at the end of 2008; a child born on January 1, 1985, is considered to be age 24 at the end of 2008.
If all these statements are true, Form 8615, Tax for Certain Children With Investment Income of More Than $1,800, must be completed and attached to the child's tax return. If any of these statements is not true, Form 8615 is not required and the child's income is taxed at his or her own tax rate.
However, the parent can choose to include the child's interest and dividends on the parent's return if certain requirements are met. Use Form 8814, Parents' Election To Report Child's Interest and Dividends, for this purpose.
For more information about the tax on investment income of children and the parents' election, see chapter 31
Interest you receive as a beneficiary of an estate or trust is generally taxable income. You should receive a Schedule K-1 (Form 1041), Beneficiary's Share of Income, Deductions, Credits, etc., from the fiduciary. Your copy of Schedule K-1 and its instructions will tell you where to report the income on your Form 1040. taxmap/pub17/p17-032.htm#en_us_publink100032600
You must give your name and SSN to any person required by federal tax law to make a return, statement, or other document that relates to you. This includes payers of interest. taxmap/pub17/p17-032.htm#en_us_publink100032601
If the funds in a joint account belong to one person, list that person's name first on the account and give that person's SSN to the payer. (For information on who owns the funds in a joint account, see Joint accounts
, later.) If the joint account contains combined funds, give the SSN of the person whose name is listed first on the account.
These rules apply both to joint ownership by a married couple and to joint ownership by other individuals. For example, if you open a joint savings account with your child using funds belonging to the child, list the child's name first on the account and give the child's SSN. taxmap/pub17/p17-032.htm#en_us_publink100032602
If your child is the actual owner of an account that is recorded in your name as custodian for the child, give the child's SSN to the payer. For example, you must give your child's SSN to the payer of interest on an account owned by your child, even though the interest is paid to you as custodian. taxmap/pub17/p17-032.htm#en_us_publink100032603taxmap/pub17/p17-032.htm#en_us_publink100032604
Your interest income is generally not subject to regular withholding. However, it may be subject to backup withholding to ensure that income tax is collected on the income. Under backup withholding, the payer of interest must withhold, as income tax, 28% of the amount you are paid.
Backup withholding may also be required if the Internal Revenue Service (IRS) has determined that you underreported your interest or dividend income. For more information, see Backup Withholding
in chapter 4.
If backup withholding is deducted from your interest income, the payer must give you a Form 1099-INT for the year that indicates the amount withheld. The Form 1099-INT will show any backup withholding as "Federal income tax withheld." taxmap/pub17/p17-032.htm#en_us_publink100032606
If two or more persons hold property (such as a savings account or bond) as joint tenants, tenants by the entirety, or tenants in common, each person's share of any interest from the property is determined by local law.
Property you give as a parent to your child under the Model Gifts of Securities to Minors Act, the Uniform Gifts to Minors Act, or any similar law becomes the child's property.
Income from the property is taxable to the child, except that any part used to satisfy a legal obligation to support the child is taxable to the parent or guardian having that legal obligation. taxmap/pub17/p17-032.htm#en_us_publink100032608
Interest income from a savings account opened for a child who is a minor, but placed in the name and subject to the order of the parents as trustees, is taxable to the child if, under the law of the state in which the child resides, both of the following are true.
- The savings account legally belongs to the child.
- The parents are not legally permitted to use any of the funds to support the child.
Interest income is generally reported to you on Form 1099-INT, or a similar statement, by banks, savings and loans, and other payers of interest. This form shows you the interest you received during the year. Keep this form for your records. You do not have to attach it to your tax return.
Report on your tax return the total amount of interest income that you receive for the tax year. taxmap/pub17/p17-032.htm#en_us_publink100032610
Even if you do not receive Form 1099-INT, you must still report all of your taxable interest income. For example, you may receive distributive shares of interest from partnerships or S corporations. This interest is reported to you on Schedule K-1 (Form 1065) or Schedule K-1 (Form 1120S).taxmap/pub17/p17-032.htm#en_us_publink100032611
Generally, if someone receives interest as a nominee for you, that person will give you a Form 1099-INT showing the interest received on your behalf.
If you receive a Form 1099-INT that includes amounts belonging to another person, see the discussion on nominee distributions under How To Report Interest Income in chapter 1 of Publication 550, or see the Schedule 1 (Form 1040A) or Schedule B (Form 1040) instructions.taxmap/pub17/p17-032.htm#en_us_publink100032612
If you receive a Form 1099-INT that shows an incorrect amount (or other incorrect information), you should ask the issuer for a corrected form. The new Form 1099-INT you receive will be marked "Corrected." taxmap/pub17/p17-032.htm#en_us_publink100032613
Reportable interest income may also be shown on Form 1099-OID, Original Issue Discount. For more information about amounts shown on this form, see Original Issue Discount (OID)
, later in this chapter.
Exempt-interest dividends you receive from a mutual fund or other regulated investment company are not included in your taxable income. (However, see Information-reporting requirement
, next.) Exempt-interest dividends should be shown in box 8 of Form 1099-INT.
Although exempt-interest dividends are not taxable, you must show them on your tax return if you have to file. This is an information-reporting requirement and does not change the exempt-interest dividends into taxable income.
Exempt-interest dividends paid from specified private activity bonds may be subject to the alternative minimum tax. See Alternative Minimum Tax
in chapter 30 for more information. Chapter 1 of Publication 550 contains a discussion on private activity bonds under State or Local Government Obligations
Interest on insurance dividends that you leave on deposit with the Department of Veterans Affairs (VA) is not taxable. This includes interest paid on dividends on converted United States Government Life Insurance and on National Service Life Insurance policies. taxmap/pub17/p17-032.htm#en_us_publink100032618
Interest on a Roth IRA generally is not taxable. Interest on a traditional IRA is tax deferred. You generally do not include it in your income until you make withdrawals from the IRA. See chapter 17