we know nothing about the child's age or income so be aware that the kiddie tax rules apply when the following 4 conditions are met for the year
- The child does not file a joint return
- One or both parents are alive at year-end
- The child’s unearned income exceeds %1300hreshold and the child has positive taxable income after subtracting any applicable deductions including their itemized or standard deduction
- The child falls under one of three age groups (age on 12/31 of the tax year)
- Under 18 > always applies
- 18 applies if their earned income <=50% of their support
- 19-23child is a full time student and earned income <=50% of their support
- Over 23 never applies
2024 filing requirements. must file if any of the following apply
- Unearned income over $1300
- Earned income over $14600
- Gross income more than the greater of (a) $1300 or (b) earned income plus $450 (not to exceed $14600)
Filing options available to the parent(s)
- If the kiddie tax doesn’t apply using online requires the creation of a separate account for the child’s return – unique User ID but e-mail can be the same as that of a parent
- If the kiddie tax does apply the parent can use option a) above. The parent(s) must complete their return because certain info from it is required. Form 8615 must be included. This option must be used if c) can’t be used
- Same as b) except no separate return is filed for the child. Rather the parents include Form 8814 in their return to report the child’s income. This option is only available if all the following are met:
- The child’s only income is from interest, dividends, and/or capital gain distributions
- The child’s gross income is less than $13000
- There are no estimated tax payments or withholding in the child’s name
- The child is under 19 or under 24 if a full-time student
The advantages to the 8814 option is that there is no child’s return which may save some Turbotax fees and may simplify filing for the parent(s). Be wary of this option if you have state income taxes. They may not allow this option which means you would still have to create a separate account to create and submit the child’s state return. The parent’s AGI and investment income are increased which may allow for a larger charitable deduction and/or larger investment interest deduction.
The disadvantages include there is no deduction for the child’s early withdrawal penalty and any itemized deductions of the child are not allowed. More income which could affect the parents Net Investment Income tax. The child’s first 41300 of taxable income is taxes at 10% If this income was capital gain or qualified dividends the tax could be as low as $0 on a separate return
