@titi10402022 wrote:
Can you provide clarification on the circumstances under which incorporating a child's income into the parents' return would result in higher taxes compared to filing the child's return separately?
@titi10402022
First of all, you refer to "incorporating a child's income." But you can only include a few specific types of a child's income on the parents' return. As stated in the second bullet in Mike9241's post above, you can only do it if the child's only income is interest, dividends, capital gain distributions, and Alaska Permanent Fund dividends. If the child has any other type of income, you have to file a separate return for the child, if he or she is required to file.
Many of the circumstances that would result in higher tax are listed in the IRS Instructions for Form 8814, which is the form that's used to report a child's interest and dividends on the parents' return. In the instructions, in the left column on page 2 see "Tax benefits you cannot take," "Reduced deductions or credits," and "Rate may be higher." Including a child's interest and dividends could also make you subject to Net Investment Income Tax or increase your Net Investment Income Tax if you are already subject to it.
@titi10402022 wrote:
Is it a consistent rule that such inclusion always leads to higher or at least equal tax liability?
That's almost always true, but it's not quite 100%. There are a couple of rare circumstances where the parents might benefit from including the child's interest and dividends. These involve the deduction for investment interest or very large contributions to charity. But these rare possible benefits will not necessarily outweigh the disadvantages.
