If a child's interest, dividends, and other investment income total more than $1,800, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Attach the completed form to the child's Form 1040 or Form 1040A.
Earned income includes wages, tips, and other payments received for personal services performed. It does not include investment income as defined later in this chapter.
Your child's support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. To figure your child's support, count support provided by you, your child, and others. However, a scholarship received by your child is not considered support if your child is a full-time student. See chapter 3 for details about support.
Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed.
On Form 8615, lines A and B, enter the parent's name and social security number. (If the parents filed a joint return, enter the name and social security number listed first on the joint return.) On line C, check the box for the parent's filing status.
See Which Parent's Return To Use
at the beginning of this chapter for information on which parent's return information must be used on Form 8615.
If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. taxmap/pub17/p17-168.htm#en_us_publink100034789
If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates.
You can use any reasonable estimate. This includes using information from last year's return. If you use an estimated amount on Form 8615, enter "Estimated" on the line next to the amount.
When you get the correct information, file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return.
Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. Extensions are discussed in chapter 1.taxmap/pub17/p17-168.htm#en_us_publink100034790
The first step in figuring a child's tax using Form 8615 is to figure the child's net investment income. To do that, use Form 8615, Part I.taxmap/pub17/p17-168.htm#en_us_publink100034791
If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Adjusted gross income is shown on Form 1040, line 38, or Form 1040A, line 22. Form 1040EZ cannot be used if Form 8615 must be filed.
If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form.
However, if the child has excluded any foreign earned income or deducted either a loss from self-employment or a net operating loss from another year, use the Alternate Worksheet for Form 8615, Line 1, in Publication 929 to figure the amount to enter on Form 8615, line 1. taxmap/pub17/p17-168.htm#en_us_publink100034792
Investment income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. It includes taxable interest, dividends, capital gains (including capital gain distributions), the taxable part of social security and pension payments, and certain distributions from trusts. Investment income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). taxmap/pub17/p17-168.htm#en_us_publink100034793
For this purpose, investment income includes only amounts the child must include in total income. Nontaxable investment income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. taxmap/pub17/p17-168.htm#en_us_publink100034794
A child's investment income includes all income produced by property belonging to the child. This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it.
A child's investment income includes income produced by property given as a gift to the child. This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. taxmap/pub17/p17-168.htm#en_us_publink100034795
Amanda Black, age 13, received the following income.
- Dividends — $600
- Wages — $2,100
- Taxable interest — $1,200
- Tax-exempt interest — $100
- Net capital gains — $100
The dividends were qualified dividends on stock given to her by her grandparents.
Amanda's investment income is $1,900. This is the total of the dividends ($600), taxable interest ($1,200), and net capital gains ($100). Her wages are earned (not investment) income because they are received for work actually done. Her tax-exempt interest is not included because it is nontaxable. taxmap/pub17/p17-168.htm#en_us_publink100034796
If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other investment income from the trust are investment income to the child.
However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income, not investment income.taxmap/pub17/p17-168.htm#en_us_publink100034797
If the child does not itemize deductions on Schedule A (Form 1040), enter $1,800 on line 2.
If the child does itemize deductions, enter on line 2 the larger of:
- $900 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29, that are directly connected with the production of investment income entered on line 1, or
Itemized deductions are directly connected with the production of investment income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees.
These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). Only the amount greater than 2% of the child's adjusted gross income can be deducted. See chapter 28
for more information.
Roger, age 12, has investment income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2% limit) that are directly connected with his investment income. His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. Line 2 is $1,800 because that is more than the sum of $900 and his directly-connected itemized deductions of $300.taxmap/pub17/p17-168.htm#en_us_publink100034800
Eleanor, age 8, has investment income of $16,000 and an early withdrawal penalty of $100. She has no other income. She has itemized deductions of $1,050 (net of the 2% limit) that are directly connected with the production of her investment income. Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). The amount on line 2 is $1,950. This is the larger of:
- $900 plus the $1,050 of directly connected itemized deductions, or
Subtract line 2 from line 1 and enter the result on this line. If zero or less, do not complete the rest of the form. However, you must still attach Form 8615 to the child's tax return. Figure the tax on the child's taxable income in the normal manner.taxmap/pub17/p17-168.htm#en_us_publink100034802
Enter on line 4 the child's taxable income from Form 1040, line 43, or Form 1040A, line 27.
However, if the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion or housing exclusion, see the Form 8615 instructions.taxmap/pub17/p17-168.htm#en_us_publink100034803
A child's net investment income cannot be more than his or her taxable income. Enter on Form 8615, line 5, the smaller of line 3 or line 4. This is the child's net investment income.
If zero or less, do not complete the rest of the form. However, you must still attach Form 8615 to the child's tax return. Figure the tax on the child's taxable income in the normal manner.taxmap/pub17/p17-168.htm#en_us_publink100034804
The next step in completing Form 8615 is to figure a tentative tax on the child's net investment income at the parent's tax rate. The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net investment income (plus the net investment income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it.
When figuring the tentative tax at the parent's tax rate, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net investment income. For example, do not refigure the medical expense deduction.
Figure the tentative tax on Form 8615, lines 6 through 13.
If the child has any capital gains or losses, get Publication 929 for help in completing Form 8615, Part II.
If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. Do not include the amount from line 5 of the Form 8615 being completed.taxmap/pub17/p17-168.htm#en_us_publink100034807
Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. The children's net investment income amounts on line 5 of their Forms 8615 are:
- Sharon — $800
- Jerry — $600
- Mike — $1,000
Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615.
Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000).
Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600).taxmap/pub17/p17-168.htm#en_us_publink100034808
If the net investment income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. See Parent's return information not known timely,
Subtract line 10 from line 9 and enter the result on this line. This is the tentative tax.
If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. Also skip the discussion for lines 12a and 12b that follows.taxmap/pub17/p17-168.htm#en_us_publink100034810
If an amount is entered on line 7, divide the tentative tax shown on line 11 among the children according to each child's share of the total net investment income. This is done on lines 12a, 12b, and 13. Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. Divide the amount on line 5 by the amount on line 12a and enter the result as a decimal on line 12b. taxmap/pub17/p17-168.htm#en_us_publink100034811
In the earlier example under Line 7 (net investment income of other children),
Sharon's Form 8615 shows $1,600 on line 7. The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). The decimal on line 12b is .333, figured as follows and rounded to three places.
The final step in figuring a child's tax using Form 8615 is to determine the larger of:
- The total of:
- The child's share of the tentative tax based on the parent's tax rate, plus
- The tax on the child's taxable income in excess of net investment income, figured at the child's tax rate, or
- The tax on the child's taxable income, figured at the child's tax rate.
This is the child's tax. It is figured on Form 8615, lines 14 through 18.taxmap/pub17/p17-168.htm#en_us_publink100034813
A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. See Alternative Minimum Tax
in chapter 30.
For more information on who is liable for AMT and how to figure it, see Form 6251, Alternative Minimum Tax—Individuals. For information on special limits that apply to a child who files Form 6251, see Alternative Minimum Tax in Publication 929.taxmap/pub17/p17-168.htm#en_us_publink100034814
The following example includes a completed Form 8615. Form 1040A is not shown.
John and Laura Brown have one child, Sara. She is 13 and has $2,800 taxable interest income and $1,500 earned income. She does not itemize deductions. John and Laura file a joint return with John's name and social security number listed first. They claim three exemptions, including an exemption for Sara, on their return.
Because Sara is under age 18 and has more than $1,800 investment income, part of her income may be subject to tax at her parents' rate. A completed Form 8615 must be attached to her return.
Sara's father, John, fills out Sara's return for her. He completes her Form 1040A through line 27, then begins completing her Form 8615.
John enters his name and social security number on Sara's Form 8615 because his name and number are listed first on the joint return he and Laura are filing. He checks the box for married filing jointly.
He enters Sara's investment income, $2,800, on line 1. Sara does not itemize deductions, so John enters $1,800 on line 2. He enters $1,000 ($2,800 − $1,800) on line 3.
Sara's taxable income on her Form 1040A, line 27, is $2,500. This is her total income ($4,300) minus her standard deduction ($1,800). Her standard deduction is limited to the amount of her earned income plus $300. John enters $2,500 on line 4.
John compares lines 3 and 4 and enters the smaller amount, $1,000, on line 5.
John enters $48,000 on line 6. This is the taxable income from line 43 of John and Laura's joint Form 1040 return. Sara is an only child, so line 7 is blank. He adds line 5 ($1,000), line 6 ($48,000), and line 7 (blank), and enters $49,000 on line 8.
Using the column for married filing jointly in the Tax Table, John finds the tax on $49,000. He enters the tax, $6,551, on line 9. He enters $6,401 on line 10. This is the tax from line 44 of John and Laura's Form 1040. He enters $150 on line 11 ($6,551 − $6,401).
Because line 7 is blank, John skips lines 12a and 12b and enters $150 on line 13.
John subtracts line 5 ($1,000) from line 4 ($2,500) and enters the result, $1,500, on line 14. Using the column for single filing status in the Tax Table, John finds the tax on $1,500 and enters this tax, $151, on line 15. He adds lines 13 ($150) and 15 ($151) and enters $301 on line 16.
Using the column for single filing status in the Tax Table, John finds the tax on $2,500 (line 4) and enters this tax, $251, on line 17.
John compares lines 16 and 17 and enters the larger amount, $301, on line 18 of Sara's Form 8615. He also enters that amount on line 28 of Sara's Form 1040A.