What is IRS Form 8615: Tax for Certain Children Who Have Unearned Income

You must determine the amount of net capital gain and qualified dividends included on this line before completing line 9. If a child’s parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. If the parents didn’t live together all year, the rules explained earlier under Parents are divorced apply.

  1. If a child’s parents are married to each other and file a joint return, use the joint return to complete Form 8615.
  2. However, you must still attach Form 8615 to your child’s tax return.
  3. Form 8814, another IRS document, intersects with Form 8615 in terms of children’s income.
  4. In the face of political pressure, Congress repealed the TCJA kiddie tax for 2020 and beyond.
  5. Each child’s remaining taxable income was taxed using the individual child’s marginal tax rates.

In addition, the TCJA made a significant change to the tax rate of the kiddie tax. The child is no longer taxed at the parent’s top marginal tax rate and is instead taxed at a modified tax rate that is based on the rate that applies to estates and trusts. This change simplifies the completion of Form 8615, which in prior years required the child to include taxable income of the parent (line 6) and any other qualifying children (line 7). The incomes for those other individuals either may not be available or, possibly, the parent or sibling may not want to reveal to the child that information. Whether athletic or similar service-based scholarships still qualify under the no-strings-attached test is debatable, but at this point the IRS has chosen not to press the issue.

Alternate Worksheet for Form 8615, Line 1

If a widow or widower remarries, the new spouse is treated as the child’s other parent. The rules explained earlier under Custodial parent remarried apply. Form 8615 must be filed for any child who meets all of the following conditions. For additional requirements and information on which of forms/method for filing may be based for your specific tax-filing situation, please refer to the IRS Publication 929.

Also skip the rest of this discussion and the discussion for line 15 that follows. If the parent has a net capital gain, its full amount is the net capital gain included on line 6. If the parent has qualified dividends, the full amount is the amount of qualified dividends included on line 6. The “Kiddie Tax” only applies to investment earnings classified as “unearned income.” Wages and other earned income received by a child under 18 are taxed at the child’s normal rate.

Line 5 Worksheet #3

On line 1 of this worksheet, enter the amount from Form 8615, line 14. Complete lines 2a through 23 following the Schedule J instructions. Use the child’s filing status to complete lines 4, 8, 12, and 16. Before using the Qualified Dividends and Capital Gain Tax Worksheet to figure the line 15 tax, you will need to know the amount of net capital gain and qualified dividends, if any, included on line 14. See Net capital gain and qualified dividends on line 14 , earlier.

Parents may be required to furnish additional details and perform complex calculations to accurately report and assess the tax on this income category. The tax rate imposed on a child’s unearned income through Form 8615 is typically the parents’ tax rate, which can be higher than the child’s standard rate. This mechanism ensures that the income is taxed at a potentially higher rate, effectively countering the strategy of income shifting for tax benefits. Form 8814, another IRS document, intersects with Form 8615 in terms of children’s income. It permits parents to opt to report their child’s income on their tax return, thus avoiding the need for the child to file separately. Nonetheless, Form 8814 has distinct parameters and limitations in comparison to Form 8615, making it crucial to understand the differences and applicability of each form.

These modifications resulted in higher taxes in many cases because the lower estate and trust income tax brackets are much narrower than those for individuals. Before the TCJA, children subject to the kiddie tax computed tax on their net unearned income using their parents’ marginal tax rates. This “allocable parental tax” was spread across all https://turbo-tax.org/ the siblings in a family who were subject to the kiddie tax. Each child’s remaining taxable income was taxed using the individual child’s marginal tax rates. For over 30 years, this bifurcated tax computation negated any tax savings that might have resulted from the presumed shifting of unearned income from parents to their dependent children.

Taxpayers may elect to modify their tax on dependent children with unearned income for tax years 2018 and 2019. The election allows taxpayers to recalculate the tax on dependent children with unearned income for these years to be based on the parent’s individual tax rate instead of the previous tax rates (condensed trust and estates tax rates). One notable advantage of the change implemented by the TCJA is the child’s ability to use rates from the lower modified trust and estate tax brackets, thereby saving some tax on the first portion of the child’s unearned income.

Should parents include their child’s income on their tax return?

Before taking any action, you should always seek the assistance of a professional who knows your particular situation for advice on taxes, your investments, the law, or any other business and professional matters that affect you and/or your business. If your child files Form 2555, don’t enter the amount from Form 8615, line 18, on the child’s Form 1040 or 1040-NR, line 16. Instead, enter the amount from Form 8615, line 18, on line 4 of the child’s Foreign Earned Income Tax Worksheet. Then complete the rest of the Foreign Earned Income Tax Worksheet (in the Instructions for Form 1040) to figure the child’s tax.

Thank you for the quick return, but he did not have over $2200 of unearned income. He’s effectively being paid as a contracted employee but he is working for the income. He had $0 in unearned income – no unemployment income, nothing but wages and his 1099-NEC. Enter the amount from line 23 of this worksheet Schedule J on Form 8615, line 15, and check the box on that line.

There are a few things to be aware of about clean vehicle and residential energy tax credits for the upcoming 2024 filing season. Initials — Enter the initials of the service provider(s) providing billable activities to the individual. Figure form 8615 the tax using the Tax Table, Tax Computation Worksheet, Qualified Dividends and Capital Gain Tax Worksheet, Schedule D Tax Worksheet, or Schedule J, whichever applies. Enter on line 10 the amount from Form 1040, 1040-SR, or 1040-NR, line 16.

Form 8615 – Tax for Certain Children Who Have Unearned Income

Your 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 isn’t considered support if your child is a full-time student.

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