I closed out an annuity account that was in my dependent child's name, I received a 1099-R from the institution, do I pay taxes and penalties on the gain portion?

If the annuity has your child's social security on the 1099-R, this would be reported on his own tax return, even though they are a minor. If the income is insufficient, a tax return may not be required. If their income is more than $1,100, a tax return would not need to be filed. If the 1099-R is less than that, no return is needed for the child.

You would be allowed to add their income to your return if they received interest, dividends or capital gains.