It depends. They need to file or you need to include it on your tax return if the taxable unearned income is over $1,300. As long as you know it's below that amount when the tax free interest is removed they do not need to file. See the specifics below and if they are not required to file, you do not need to include it on your tax return.
- IRS Publication 501 - Dependents filing requirements chart
- Income: unearned income includes taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust. Earned income includes salaries, wages, tips, professional fees, and taxable scholarship and fellowship grants. Gross income is the total of your unearned and earned income.
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