Unemployment, kiddie tax, covid, 8915-E and 2nd stimulus...

[JamesG1]

@rajbull

I think that you are referring to IRS Form 8615 Tax for Certain Children Who Have Unearned Income.

IRS Form 8615 instructions state:

What’s New

Change in tax rates

Recent legislation modified the tax rates and brackets used to figure the tax on 2020 unearned income for certain children. For tax year 2020, dependent children with unearned income above a certain amount are taxed at the parents' individual tax rate.

[khmyers1970]

You use Form 8915-E not Form 5329

[KathrynG3]

The tax returns are not linked but are still related to each other. Yes, your dependents listed with their names, dates of birth, and social security numbers will prompt the question regarding the kiddie tax to be compliant with the IRS.

For your children, there are questions regarding parents' income, etc. that would provide the details to calculate the higher Kiddie Tax rate for them.

For more details, see: How do I report and pay the Kiddie Tax on my 2020 return?

Topic No. 553 Tax on a Child's Investment and Other Unearned Income (Kiddie Tax)

Update regarding Form 8915-E:

Form 8915-E will allow no penalties when reporting early distributions from 401(k) retirement accounts. They must be reported evenly over the next 3 years, one third in each year, 2020, 2021, and 2022.

Form 8915-E was only recently approved for electronically filed returns. Our engineers are working hard on updating the program to accommodate the changes and are expected to have the update ready by February 25, 2021, as of this writing.

For more information, see: What is Form 8915-E Qualified 2020 Disaster Retirement Plan Distributions and Repayments?

Until the program is updated, if you wish to proceed, you would have to paper file. The IRS takes at least 6-8 weeks to process a paper filed return and 2-3 weeks to process an electronically filed return.

To paper file your return, see these links:

• How do I print and mail my return in TurboTax Online?
• How do I print my return in the mobile app?
• How do I print and mail a return in the TurboTax for Windows CD/Download software?

@ahydress

@rajbull

[ahydress]

So, until the form is published in TurboTax (and I assume the corresponding step-by-step questioning (Guide Me) as well), is it fair to say (as an example) if I took a $15K early distribution due to covid, and the 1099 doesn't mark it as "due to covid", the way the 8915-E form will work would be as if the "taxable amount" on the TurboTax 1099 page is essentially 1/3 the amount for this and the next 2 years?

And regarding the kiddie tax, we took a couple of early distributions all due to covid. We took a permanent $1500/month income hit - money we allotted to making monthly payments on debt. Since we took that hit, the best way to compensate was the early distributions to pay off that debt, releasing the dependency on the lost wages, but that jacked our net/gross income. Would that jacking of our income effect the amount our kids are paying in the kiddie tax? 

[AmeliesUncle]

---

@ahydress wrote:

the way the 8915-E form will work would be as if the "taxable amount" on the TurboTax 1099 page is essentially 1/3 the amount for this and the next 2 years?

Would that jacking of our income effect the amount our kids are paying in the kiddie tax? 

---

Yes, 1/3 each year.

Possibly?  The kids unearned income is taxed at YOUR tax bracket.  So if your "jacking" of income put you in a higher-than-usual tax bracket, then the kids would be paying that.  But if you are in the same tax bracket as before, your "jacking" of income would not affect the amount of the Kiddie Tax.

[ahydress]

Good to know about the 1/3. At least I can pay back the other 2/3 over the next 2 years and help my kids pay their kidding taxes this year. 

So...I'm assuming my "tax bracket" for this year doesn't factor in the added income of the early distributions?

[AmeliesUncle]

Your tax bracket is based on your "taxable income", which includes things like wages, unemployment and the 1/3 of your retirement distributions.

[macuser_22]

---

@ahydress wrote:

Good to know about the 1/3. At least I can pay back the other 2/3 over the next 2 years and help my kids pay their kidding taxes this year. 

So...I'm assuming my "tax bracket" for this year doesn't factor in the added income of the early distributions?

---

Here are the qualifications to be COVID related.

https://www.irs.gov/newsroom/coronavirus-related-relief-for-retirement-plans-and-iras-questions-and-...

Q3. Am I a qualified individual for purposes of section 2202 of the CARES Act?

A3. You are a qualified individual if –

• You are diagnosed with the virus SARS-CoV-2 or with coronavirus disease 2019 (COVID-19) by a test approved by the Centers for Disease Control and Prevention;

• Your spouse or dependent is diagnosed with SARS-CoV-2 or with COVID-19 by a test approved by the Centers for Disease Control and Prevention;

• You experience adverse financial consequences as a result of being quarantined, being furloughed or laid off, or having work hours reduced due to SARS-CoV-2 or COVID-19;

• You experience adverse financial consequences as a result of being unable to work due to lack of child care due to SARS-CoV-2 or COVID-19; or

• You experience adverse financial consequences as a result of closing or reducing hours of a business that you own or operate due to SARS-CoV-2 or COVID-19.

Under section 2202 of the CARES Act, the Treasury Department and the IRS may issue guidance that expands the list of factors taken into account to determine whether an individual is a qualified individual as a result of experiencing adverse financial consequences. The Treasury Department and the IRS have received and are reviewing comments from the public requesting that the list of factors be expanded.