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IRS.gov Website
Publication 929
taxmap/pubs/p929-008.htm#en_us_publink1000203800

Parent's Election To Report Child's Interest and Dividends(p9)

For Use in Tax Year 2013
rule
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. These conditions are also shown in Figure 1.
taxmap/pubs/p929-008.htm#en_us_publink1000203801

Certain January 1 birthdays.(p10)

For Use in Tax Year 2013
rule
A child born on January 1, 1995, is considered to be age 19 at the end of 2013. You cannot make this election for such a child unless the child was a full-time student.
A child born on January 1, 1990, is considered to be age 24 at the end of 2013. You cannot make this election for such a child.
taxmap/pubs/p929-008.htm#en_us_publink1000203802

How to make the election.(p10)

For Use in Tax Year 2013
rule
Make the election by attaching Form 8814 to your Form 1040 or Form 1040NR. (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/pubs/p929-008.htm#en_us_publink1000203803

Effect of Making the Election(p10)

For Use in Tax Year 2013
rule
The federal income tax on your child's income may be more if you make the Form 8814 election.
taxmap/pubs/p929-008.htm#en_us_publink1000203804

Rate may be higher.(p10)

For Use in Tax Year 2013
rule
If your child received qualified dividends or capital gain distributions, you may pay up to $100 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 $1,000 and $2,000 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/pubs/p929-008.htm#en_us_publink1000203805

Deductions you cannot take.(p10)

For Use in Tax Year 2013
rule
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.
taxmap/pubs/p929-008.htm#en_us_publink1000270194

Figure 1. Can You Include Your Child's Income On Your Tax Return?

taxmap/pubs/p929-008.htm#en_us_publink1000270195
taxmap/pubs/p929-008.htm#en_us_publink1000203806

Deductible investment interest.(p10)

For Use in Tax Year 2013
rule
If you use Form 8814, your child's unearned income is considered your unearned income. To figure the limit on your deductible investment interest, add the child's unearned income to yours. However, if your child received qualified dividends, capital gain distributions, or Alaska Permanent Fund dividends, see chapter 3 of Publication 550 for information about how to figure the limit.
taxmap/pubs/p929-008.htm#en_us_publink1000203807

Alternative minimum tax.(p11)

For Use in Tax Year 2013
rule
If your child received tax-exempt interest (or exempt-interest dividends paid by a regulated investment company) from certain private activity bonds, you must determine if that interest is a tax preference item for alternative minimum tax (AMT) purposes. If it is, you must include it with your own tax preference items when figuring your AMT. See Form 6251, Alternative Minimum Tax—Individuals, and its instructions for details.
taxmap/pubs/p929-008.htm#en_us_publink1000203808

Reduced deductions or credits.(p11)

For Use in Tax Year 2013
rule
If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return, including the following.
taxmap/pubs/p929-008.htm#en_us_publink1000203809

Penalty for underpayment of estimated tax.(p11)

For Use in Tax Year 2013
rule
If you make this election for 2013 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 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. Get Publication 505 for more information.
taxmap/pubs/p929-008.htm#en_us_publink1000203810

Figuring Child's Income(p11)

For Use in Tax Year 2013
rule
Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Only the amount over $2,000 is added to your income. The amount over $2,000 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 or Form 1040NR, 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 or Form 1040NR, line 21. On the dotted line next to line 21, enter "Form 8814" and the total of the Form 8814, line 12 amounts.
Note.The tax on the first $2,000 is figured on Form 8814, Part II. See Figuring Additional Tax, later.
taxmap/pubs/p929-008.htm#en_us_publink1000203812

Qualified dividends.(p11)

For Use in Tax Year 2013
rule
Enter on Form 8814, line 2a, any ordinary dividends your child received. This amount may include qualified dividends. Qualified dividends are those dividends reported on Form 1040, line 9b, or Form 1040NR, line 10b, and are eligible for lower tax rates that apply to a net capital gain. For detailed information about qualified dividends, see Publication 550.
If your child received qualified dividends, the amount of these dividends that is added to your income must be reported on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. You do not include these dividends on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR.
Enter the child's qualified dividends on Form 8814, line 2b. But do not include this amount on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. Instead, include the amount from Form 8814, line 9, on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. (The amount on Form 8814, line 9, may be less than the amount on Form 8814, line 2b, because lines 7 through 12 of the form divide the $2,000 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other interest and dividend income, reducing each of those amounts.)
taxmap/pubs/p929-008.htm#en_us_publink1000203813

Capital gain distributions.(p11)

For Use in Tax Year 2013
rule
Enter on Form 8814, line 3, any capital gain distributions your child received. The amount of these distributions that is added to your income must be reported on Schedule D (Form 1040), line 13, or, if you are not required to file Schedule D, on Form 1040, line 13, or Form 1040NR, line 14. You do not include it on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR.
Include the amount from Form 8814, line 10, on Schedule D, line 13; Form 1040, line 13; or Form 1040NR, line 14, whichever applies. (The amount on Form 8814, line 10, may be less than the amount on Form 8814, line 3, because lines 7 through 12 of the form divide the $2,000 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other interest and dividend income, reducing each of those amounts.)
taxmap/pubs/p929-008.htm#en_us_publink1000203814
Collectibles (28% rate) gain.(p11)
If any of the child's capital gain distributions are reported on Form 1099-DIV as collectibles (28% rate) gain, you must determine how much to also include on line 4 of the 28% Rate Gain Worksheet, in the instructions for Schedule D, line 18. Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. The numerator is the part of the child's total capital gain distribution that is collectibles (28% rate) gain. The denominator is the child's total capital gain distribution. Enter the result on line 4 of the 28% Rate Gain Worksheet.
taxmap/pubs/p929-008.htm#en_us_publink1000203815
Unrecaptured section 1250 gain.(p11)
If any of the child's capital gain distributions are reported on Form 1099-DIV as unrecaptured section 1250 gain, you must determine how much to include on line 11 of the Unrecaptured Section 1250 Gain Worksheet in the instructions for Schedule D, line 19. Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. The numerator is the part of the child's total capital gain distribution that is unrecaptured section 1250 gain. The denominator is the child's total capital gain distribution. Enter the result on the Unrecaptured Section 1250 Gain Worksheet, line 11.
taxmap/pubs/p929-008.htm#en_us_publink1000203818
Section 1202 gain.(p12)
If any of the child's capital gain distributions are reported as section 1202 gain (gain on qualified small business stock) on Form 1099-DIV, part or all of that gain may be eligible for the section 1202 exclusion. (For information about the exclusion, see chapter 4 of Publication 550.) To figure that part, multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. The numerator is the part of the child's total capital gain distribution that is section 1202 gain. The denominator is the child's total capital gain distribution. Your section 1202 exclusion is generally 50% of the result, but may be subject to a limit. In some cases, the exclusion is more than 50%. See the instructions for Schedule D for details and information on how to report the exclusion amount.
taxmap/pubs/p929-008.htm#en_us_publink1000203819

Example.(p12)

Fred is 6 years old. In 2013, he received dividend income of $2,100, which included $1,575 of ordinary dividends and a $525 capital gain distribution from a mutual fund. (None of the distributions were reported on Form 1099-DIV as unrecaptured section 1250 gain, section 1202 gain, or collectibles (28% rate) gain.) All of the ordinary dividends are qualified dividends. He has no other income and is not subject to backup withholding. No estimated tax payments were made under his name and social security number.
Fred's parents elect to include Fred's income on their tax return instead of filing a return for him.
They figure the amount to report on Form 1040, lines 9a and 9b, the amount to report on their Schedule D, line 13, and the amount to report on Form 1040, line 21, as follows.
They leave lines 1a and 1b of Form 8814 blank because Fred does not have any interest income. They enter his ordinary dividends of $1,575 on lines 2a and 2b because all of Fred's ordinary dividends are qualified dividends. They enter the amount of Fred's capital gain distributions, $525, on line 3. Next, they add the amounts on lines 1a, 2a, and 3 and enter the result, $2,100, on line 4.
They subtract the base amount on line 5, $2,000, from the amount on line 4, $2,100, and enter the result, $100, on line 6. This is the total amount from Form 8814 to be reported on their return. Next, they figure how much of this amount is qualified dividends and how much is capital gain distributions.
They enter $100 ($75 + $25) on line 11 and -0- ($100 – $100) on line 12. Because the amount on line 12 is -0-, they do not include any amount from Form 8814 on their Form 1040, line 21.
taxmap/pubs/p929-008.htm#en_us_publink1000203820

Figuring Additional Tax(p12)

For Use in Tax Year 2013
rule
Use Form 8814, Part II, to figure the tax on the $2,000 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:
  1. 10% x (your child's gross income − $1,000), or
  2. $100.
EIC
Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44, or Form 1040NR, line 42. Check box a on Form 1040, line 44, or Form 1040NR, line 42.