Form 8615 and the Alaska PFD

[NomeMan]

My child received the Alaska PFD in 2022 which amounted to $3284.  TT is asking me to complete form 8615 which I do not understand since the form says only use if the child has more than $2300 in INVESTMENT income.  The PFD is not investment income.  It is frankly ridiculous that a child should have to pay almost $500 in taxes on $3284 from the PFD.  Who we *really* have to file the 8615 form for them???

[HelenC12]

Per IRS: A child's  Alaska Permanent Fund Dividend (PDF) needs to be reported, even if it was their only source of income in 2022.

It depends on the conditions below whether Form 8615 has to be filed or not.  

Use Form 8814 if the parent elects to report their child’s income. If income is reported on a parent's return, the child doesn't have to file a return. To report a child's income, the child must meet all of the following conditions:

• The child was under age 19 (or under age 24 if a full-time student) at the end of the tax year.
• The child’s only income was from interest and dividends, including capital gain distributions and Alaska Permanent Fund dividends.
• The child’s gross income for the year was less than $12,400.
• The child is required to file a current year return.
• The child doesn't file a joint return for the current year.
• There were no estimated tax payments for the child for the current year (including any overpayment of tax from his or her prior-year return applied to the current year's estimated tax).
• There was no federal income tax withheld from the child’s income.

The parent must also qualify to make the election. See the Form 8814 Instructions for additional details.

 

Form 8615 - Tax for Certain Children Who Have Unearned Income

If the child doesn't qualify for a Form 8814 election, file Form 8615 with a child's separate return. The form will help you calculate the correct tax rate based on the parent's income and tax liability.

Form 8615 must be filed if the child meets all of the following conditions:

1. The child had more than $1,100 in unearned income.
2. The child is required to file a tax return.
3. The child was either:
   • Under age 18 at the end of the tax year,
   • Age 18 at the end of the tax year and didn't have earned income that was more than half the child's support, or
   • A full-time student at least age 19 and under age 24 at the end of the tax year and didn't have earned income that was more than half of the child's support.
4. At least one parent was alive at the end of the tax year.
5. The child doesn't file a joint return for the tax year.

These rules apply to a child legally adopted or a stepchild. These rules also apply whether or not the child is a dependent. See Form 8615 Instructions for additional details.

If your child's unearned income (including the Alaska PFD) is $11,000 or more, they must file their own return.

Follow these steps if you want to include your child's PFD on your return:

1. Select the Federal tab.
2. Select Wages & Income.
3. On the Your income summary screen, scroll down to Less Common Income and select Show more.
4. Select Start next to Child's Income (Under Age 24).

Answer the questions and TurboTax will fill out Form 8814 that shows the child's income.

[NomeMan]

I have already filed our (my wife and my) taxes.  My children file independently.  My children do no have more than $11,000 in unearned income, but do have 1099-DIVs from UTMAs.  To that end, I still do not understand:

1. Why they have to fill out form 8615;
2. Why their deduction is just $1,150 for ALL income; and 
3. Why their tax rate is almost 40% using form 8615.

TurboTax has the wrong tax for my wife’s and my joint 1040.  The calculated tax is almost $6,000 more than my actual tax.  

[KrisD15]

To clarify, do you mean your children have no more than 1,100 in unearned income? 

11,000 in unearned would be way over the filing requirement for a dependent. 

Additionally as far as your tax on your joint return, the Child Tax Credit is reduced from last year which may account  for a that difference. 

[NomeMan]

The original response said “less than $11,000” about 2/3 of the way down their post.  That is what I am referencing.  If it is $1,100 then yes of course both my children have more than that in unearned income since the PFD was $3,284 each in 2022.

[JohnW152]

In your original post, you state that "TT is asking me to complete form 8615 which I do not understand since the form says only use if the child has more than $2300 in INVESTMENT income."

That's not correct.  According to Who Must File in the Instructions for Form 8615:

Form 8615 must be filed for any child who meets all of the following conditions.

1. The child had more than $2,300 of unearned income.
2. The child is required to file a tax return.
3. The child either:
   • Was under age 18 at the end of 2022,
   • Was age 18 at the end of 2022 and didn’t have earned income that was more than half of the child's support, or
   • Was a full-time student at least age 19 and under age 24 at the end of 2022 and didn’t have earned income that was more than half of the child's support.
     (Earned income is defined later. Support is defined below.)
4. At least one of the child's parents was alive at the end of 2022.
5. The child doesn’t file a joint return for 2022.

[Bolding mine.]

You indicate that the PFD was $3,284 for each of your children in 2022, so requirement 1 is satisfied.

Based only on the details you've provided, the only other possible question, when it comes to the requirement to file Form 8615, is whether your children are required to file a tax return (requirement 2).  Assuming that they're your dependents, which isn't stated but is implied, they'd generally need to file a return, since their unearned income is over $1,150. See the TurboTax Help article Do I need to file my own taxes if I'm a dependent?, a dependent will generally need to file their own 2022 tax return if any of the following apply:

• Your earned income (money you made by working) exceeds $12,950
• Your unearned income (interest, dividends, capital gains, etc.) exceeds $1,150
• Your business or self-employment net income (gross minus expenses) is at least $400
• Your gross income (earned plus unearned) exceeds the larger of $1,150 or your earned income (up to $12,600) plus $350

As far as why your childrens' deductions are only $1,150 for all income, according to Standard Deduction for Dependents in IRS Publication 17:

The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the greater of:

• $1,150, or
• The individual's earned income for the year plus $400 (but not more than the regular standard deduction amount, generally $12,950).

And you're seeing the relatively high tax rate you speak of because of the small standard deduction.

[Edited 2/14/2023  |  8:13 am PST]

@NomeMan