Navigating taxes can be tricky! Here's a simple breakdown of how your child's unearned income might affect your family's tax situation.
When Your Child's Unearned Income Exceeds $2,600
If your child earns more than $2,600 in unearned income (like interest or dividends), it might be subject to special tax rules. In these cases, you may need to file Form 8615, Tax for Certain Children Who Have Unearned Income.
Here's when you'll need to file Form 8615:
Your child's unearned income was more than $2,600.
Your child meets one of the following age requirements:
Was under age 18 at the end of the tax year,
Was age 18 at the end of the tax year and didn't have earned income that was more than half of their support, or
Was a full-time student at least age 19 and under age 24 at the end of the tax year and didn't have earned income that was more than half of their support.
At least one of the child's parents was alive at the end of the tax year.
The child is required to file a tax return for the tax year.
The child doesn't file a joint return for the tax year.
If your child is required to file Form 8615, they may also be subject to the Net Investment Income Tax (NIIT). This is a 3.8% tax, and you'll use Form 8960, Net Investment Income Tax to calculate it.
Option to Include Child's Income on Your Return
If your child's income is solely from interest and dividends (including capital gain distributions) and totals less than $13,000, you might be able to include it on your tax return! This means your child wouldn't have to file a separate return. You can make this election using Form 8814, Parents' Election To Report Child's Interest and Dividends.
To use this option, all these conditions must be met:
At the end of the tax year, your child was under age 19 (or under age 24 if a full-time student).
Your child's gross income was less than $13,000 for the tax year.
Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends).
No estimated tax payments were made for your child for the tax year, and no overpayment from the previous tax year (or from any amended return) was applied to the current tax year under your child's name and Social Security number.
No federal income tax was withheld from your child's income under the backup withholding rules.
Your child is required to file a return unless you make this election.
Your child doesn't file a joint return for the tax year.
You're the parent qualified to make the election, or you file a joint return with your child's other parent.
Important Considerations
Remember, these rules apply only if your child is required to file a tax return in the first place.
Where to Find More Information
For detailed instructions and more information, refer to the Instructions for Form 8615 and the Instructions for Form 8814.