Q. Where does the kiddie tax liability get reported? On whose return?
A. On the student's return, using form 8615*.
Q. And does it make a difference to the amount owed under the kiddie tax?
A. Yes, as the parent's marginal rate is almost always more. The kiddie tax kicks in if he has more than $2500 of unearned income and net taxable income.
Q. Are there benefits to doing it one way or the other?
A. It's not optional, but no, in your case.
Q. Consider if reported under parents' return on 8814, does that have the effect of increasing parent income? Or only show that parents will be paying the child's kiddie tax liability?
A. Parents will be paying the child's kiddie tax liability
*If his only income is from interest and dividends, Alaska PFD or capital gains distributions shown on a 1099-DIV, there is a provision for entering his income on your return, using form 8814. Taxable 529 earnings or taxable scholarship doesn't qualify
