You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. If you do, your child will not have to file a return.
You can make this election only if all the following conditions are met.
- Your child was under age 19 (or under age 24 if a full-time student) at the end of the year.
- Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends).
- The child's gross income was less than $9,000.
- The child is required to file a return unless you make this election.
- The child does not file a joint return for the year.
- No estimated tax payment was made for the year, and no overpayment from the previous year was applied to this year under your child's name and social security number.
- No federal income tax was taken out of your child's income under the backup withholding rules.
- You are the parent whose return must be used when applying the special tax rules for children. (See Which Parent's Return To Use, earlier.)
These conditions are also shown in Figure 31-A.
A child born on January 1, 1990, is considered to be age 19 at the end of 2008. You cannot make this election for such a child unless the child was a full-time student.
A child born on January 1, 1985, is considered to be age 24 at the end of 2008. You cannot make this election for such a child.taxmap/pub17/p17-167.htm#en_us_publink100091163
A full-time student is a child who during any part of 5 calendar months of the year was enrolled as a full-time student at a school, or took a full-time, on-farm training course given by a school or a state, county, or local government agency. A school includes a technical, trade, or mechanical school. It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet.taxmap/pub17/p17-167.htm#en_us_publink100034773
Make the election by attaching Form 8814 to your Form 1040. (If you make this election, you cannot file Form 1040A or Form 1040EZ.) Attach a separate Form 8814 for each child for whom you make the election. You can make the election for one or more children and not for others. taxmap/pub17/p17-167.htm#en_us_publink100034774
The federal income tax on your child's income may be more if you make the Form 8814 election. taxmap/pub17/p17-167.htm#en_us_publink100034775
If your child received qualified dividends or capital gain distributions, you may pay up to $90 more tax if you make this election instead of filing a separate tax return for the child. This is because the tax rate on the child's income between $900 and $1,800 is 10% if you make this election. However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions.taxmap/pub17/p17-167.htm#en_us_publink100034776
By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return.
- The additional standard deduction for a blind child.
- The deduction for a penalty on an early withdrawal of your child's savings.
- Itemized deductions (such as your child's investment expenses or charitable contributions).
If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return including the following.
- Deduction for contributions to a traditional individual retirement arrangement (IRA).
- Deduction for student loan interest.
- Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses.
- Total itemized deductions.
- Personal exemptions.
- Credit for child and dependent care expenses.
- Child tax credit.
- Education tax credits.
- Earned income credit.
If you make this election for 2008 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. If you plan to make this election for 2009, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. See chapter 4
for more information.
Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Only the amount over $1,800 is added to your income. The amount over $1,800 is shown on Form 8814, line 6. Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. Include the amount from Form 8814, line 12, on Form 1040, line 21. Enter "Form 8814" on the dotted line next to line 21. If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040, line 21. taxmap/pub17/p17-167.htm#en_us_publink100034780
If your child's dividend income included any capital gain distributions, see Capital gain distributions under Figuring Child's Income in Part 2 of Publication 929. If your child's dividend income included any qualified dividends, see Qualified dividends under Figuring Child's Income in Part 2 of Publication 929. taxmap/pub17/p17-167.htm#en_us_publink100034781
Use Form 8814, Part II, to figure the tax on the $1,800 of your child's interest and dividends that you do not include in your income. This tax is added to the tax figured on your income.
This additional tax is the smaller of:
- 10% × (your child's gross income − $900), or
Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44. Check box a on Form 1040, line 44.taxmap/pub17/p17-167.htm#en_us_publink100034782
David and Linda Parks are married and will file separate tax returns for 2008. Their only child, Philip, is 8. Philip received a Form 1099-INT showing $1,650 taxable interest income and a Form 1099-DIV showing $1,150 ordinary dividends. All the dividends were qualified dividends. His parents decide to include that income on one of their returns so they will not have to file a return for Philip.
First, David and Linda each figure their taxable income (Form 1040, line 43) without regard to Philip's income. David's taxable income is $56,700 and Linda's is $74,300. Because her taxable income is greater, Linda can elect to include Philip's income on her return. See Which Parent's Return To Use,
On Form 8814 (see illustrated form
), Linda enters her name and social security number, then Philip's name and social security number. She enters Philip's taxable interest income, $1,650, on line 1a. Philip had no tax-exempt interest income, so she leaves line 1b blank. She enters Philip's ordinary dividends, $1,150, on line 2a. All of Philip's ordinary dividends were qualified dividends, so Linda also enters $1,150 on line 2b. Philip did not have any capital gain distributions, so she leaves line 3 blank.
Linda adds lines 1a and 2a and enters the result, $2,800, on line 4. Because Philip had qualified dividends, Linda must complete lines 7 through 11 of Form 8814. She includes the amount from line 9 of Form 8814 ($411) on lines 9a and 9b of her Form 1040. On the dotted lines next to lines 9a and 9b, she enters "Form 8814–$411."
Linda includes $589 in the total on line 21 of her Form 1040 (not illustrated) and in the space next to that line writes "Form 8814–$589." Adding that amount, plus the $411 of qualified dividends, to her income increases each of the amounts on lines 22, 37, 38, 41, and 43 of her Form 1040 by $1,000. Linda is not claiming any deductions that are affected by the increase to her income. Therefore, her revised taxable income on line 43 is $75,300 ($74,300 + $411 + $589).
On Form 8814, Linda subtracts the $900 shown on line 13 from the $2,800 on line 4 and enters the result, $1,900, on line 14. Because that amount is not less than $900, she enters $90 on line 15. This is the tax on the first $1,800 of Philip's income, which Linda did not have to add to her income. She must add this additional tax to the tax figured on her revised taxable income.
The tax on her $75,300 revised taxable income, figured using the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions, is $15,399. She adds $90, and enters the $15,489 total on Form 1040, line 44, and checks box a.
Linda attaches Form 8814 to her Form 1040.