Form 8615 for self-supporting student who does not live with either parent

[805teresa]

Sally is a fully self-supporting student age 19 whose earned income provides less than half of her support. She does not live with either parent for any part of the year. Is she required to file form 8615 with her tax return?

[DoninGA]

From the IRS Instructions for Form 8615 - https://www.irs.gov/pub/irs-pdf/i8615.pdf

Who Must File

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

1. You had more than $2,100 of unearned income.
2. You are required to file a tax return.
3. You were either:

• a. Under age 18 at the end of 2018,
• b. Age 18 at the end of 2018 and didn’t have earned income that was more than half of your support, or
• c. A full-time student at least age 19 and under age 24 at the end of 2018 and didn’t have earned income that was more than half of your support.

4. At least one of your parents was alive at the end of 2018.
5. You don’t file a joint return for 2018.

[805teresa]

Yes, I read the instructions for 8615, but there is a tension between it and Publication 17. Publication 17, p. 201, under heading "Tax for Certain Children Who Have Unearned Income" says, "Special tax rates apply to certain DEPENDENT children with unearned income of $2100 or more" (my emphasis): https://www.irs.gov/pub/irs-pdf/p17.pdf. The instructions for from 8615 however explicitly state, "These rules also apply whether or not you're a dependent": https://www.irs.gov/pub/irs-pdf/i8615.pdf. It seems unlikely that tax law dictates that a 19-year old unmarried student who fully supports herself and her parents on unearned income should be subject to trust rates simply because she has living (dependent) parents whereas a similarly situated 25-year old would be subject only to single-filer rates as would an otherwise similarly situated 19-year old whose parents were dead. But that is just what the instructions for form 8615 suggest. And that is in contrast to what publication 17 suggests. It would be very nice to know whether it is publication 17 or the instructions for form 8615 that is in need of revision. (Maybe they both are. Maybe Publication 17 should say "qualifying children" instead of "dependent children" and form 8615 should say "qualifying child" instead of "anyone"?) I don't know how to get a definitive answer to this. Any insight you have would be appreciated. Thank you.

[805teresa]

@DoninGA Maybe a follow-up question is in order. Suppose that the envisioned student's parents are divorced. That leaves her with nothing to enter on Lines A and B of form 8615. "If your parents were unmarried, treated as unmarried for federal income tax purposes, or separated by either a divorce or separate maintenance decree, enters the name and SSN of the parent with whom you resided for the greater part of the calendar year" (from i8615). Yet by the letter of the part of i8615 you quoted, this student must file 8615. So, is she just supposed to leave lines A and B blank, since she didn't reside with either parent for the greater part of the calendar year?

[DoninGA]

The Instructions for 8615 also state These rules also apply whether or not you’re a dependent. 

As far as being a dependent - 

You can be claimed as a dependent if you meet the requirements under the Qualifying Child rules, IRS Publication 501 page 12 - https://www.irs.gov/pub/irs-pdf/p501.pdf#page=12

To be a Qualifying Child -

1. The child must be your son, daughter, stepchild, foster child, brother, sister, half brother, half sister, stepbrother, stepsister, or a descendant of any of them.
2. The child must be (a) under age 19 at the end of the year, (b) under age 24 at the end of the year and a full-time student or (c) any age and permanently and totally disabled.
3. The child must have lived with you for more than half of the year. Temporary absences while away at college are considered living with you.
4. The child must not have provided more than half of his or her own support for the year.
5. If the child meets the rules to be a qualifying child of more than one person, you must be the person entitled to claim the child as a qualifying child.
6. The child must be a U.S. citizen or U.S., Canada or Mexico resident for some portion of the year.
7. The child must be younger than you unless disabled.

[DoninGA]

You enter the name and SSN of the parent where you would normally live when you were not attending school.

[macuser_22]

Lines A & B are simply the parents name and SSN.  Pub 17 is not always accurate and has not been fully updated to comply with the new 2018 tax law, but the form instructions have been.

Also see IRS tax topic https://www.irs.gov/taxtopics/tc553 and pub 929 https://www.irs.gov/pub/irs-pdf/p929.pdf

All of the IRS publications are an interpretation of the actual law which is the authority.  The tax law is  26 U.S. Code § 1.   https://www.law.cornell.edu/uscode/text/26/1

[quote]

(2) Child to whom subsection appliesThis subsection shall apply to any child for any taxable year if—

(A) such child—

(i)

has not attained age 18 before the close of the taxable year, or

(ii)

(I)

has attained age 18 before the close of the taxable year and meets the age requirements of section 152(c)(3) (determined without regard to subparagraph (B) thereof), and

(II)

whose earned income (as defined in section 911(d)(2)) for such taxable year does not exceed one-half of the amount of the individual’s support (within the meaning of section 152(c)(1)(D) after the application of section 152(f)(5) (without regard to subparagraph (A) thereof)) for such taxable year,

(B)

either parent of such child is alive at the close of the taxable year, and

(C)

such child does not file a joint return for the taxable year.

[end quote]

Note that the part of the tax code that taxes the child income at the parents tax rate was changed by the Tax Cuts and Jobs Act (TCJA) passed by congress in 2017 to tax at the qualified dividend rate instead.

[805teresa]

Thank you so much. I did notice that Publication 17 had not been appropriately updated to reflect TCJA. It's actually because of TCJA that I have the question that I have. (Just by the way, as I understand it, for the run-of-the-mill case TCJA had the effect of making it so that the unearned income of a child was no longer taxed according to the relevant parent's bracketing but according to a trust's bracketing. If the unearned income came from RMDs on inherited retirement accounts, for example, it would in many circumstances be taxed at 37%, since trust's hit that rate at very low income ($12,500 vs $500,000 for an individual). If unearned income comes from qualified dividends or LTCG, then it would be taxed at "preferential" rates, though trusts still would hit the highest of those rates at lower incomes. Your understanding seems to differ from mine--with no distinction made between different kinds of unearned income, so that all unearned income of a child is given the "preferential" treatment of qualified dividends. It would make me very happy if that were so. What do you think?) Maybe if I explain the real situation, you can better help me with my questions. I really appreciate the links to actual tax code, but I still haven't been able to find the answer I need. I'm not the person who is in this situation, but I will write as though I am, since it makes it a little simpler. My parents divorced when I was very young. Neither remarried. My father never provided any support. My father's tax returns always reported such small earnings as never to be required to pay taxes. (Because he earned so little, he didn't have to pay any child support.) My mother, who was my custodial parent when I was a minor and who earned a solidly middle-class income, died of cancer shortly after I turned 18. I was the sole beneficiary of her life insurance policy and of her retirement accounts. I also inherited our home, which I then sold. In short, my mother left me with the means to generate enough unearned income to support myself and go to college full-time. I work, but my earned income provides only a small part of my support. I do not live with my father at any time during the year. I have never lived with him. My mother is dead, so I don't live with her either. There is no parent I would normally live with if I weren't attending school. **So, I cannot truthfully do anything but leave f8615 lines A and B empty.** But if I can't truthfully do anything but leave i8615 lines A and B empty, it seems likely that I'm not supposed to be filling it out at all. It seems like f8615 is intended only for people who are someone's QUALIFYING CHILD. But that's not what the "Who Must File" section of i8615 actually says. It says that it must be filed for ANYONE who meets the conditions. I do meet the conditions. I have more than $2100 of unearned income. I am required to file a tax return. I am a full-time student at least age 19 and under age 24 and didn't have earned income that was more than half of my support, at least one of my parents is alive, and I don't file a joint return. The rules are stated to apply whether or not I'm a dependent. I'm not a dependent (obviously, since I'm no one's qualifying child), so the rules apply. But if they apply, then that means that my unearned income (RMDs from my mother's retirement plans) will put me into the 37% marginal rate for trusts instead of the 12% rate for single individuals that it would otherwise put me in. All because some man I don't even know (my father) happens to be alive? It seems to me very unlikely that that's what tax law actually dictates. It seems much more likely that there's just a little bit of bad writing of i8615. Maybe I could put my question this way. The f8615 tax is colloquially referred to as the "kiddie tax". I'm no one's kiddie. But the letter of the instructions subject me to the kiddie tax, since I am someone who meets its 5 conditions. Thank you in advance. I really appreciate your taking the time to help me.

[805teresa]

I'm so sorry that my post didn't reflect the paragraph breaks. I'm re-posting with breaks.

Thank you so much. I did notice that Publication 17 had not been appropriately updated to reflect TCJA. It's actually because of TCJA that I have the question that I have. (Just by the way, as I understand it, for the run-of-the-mill case TCJA had the effect of making it so that the unearned income of a child was no longer taxed according to the relevant parent's bracketing but according to a trust's bracketing. If the unearned income came from RMDs on inherited retirement accounts, for example, it would in many circumstances be taxed at 37%, since trust's hit that rate at very low income ($12,500 vs $500,000 for an individual). If unearned income comes from qualified dividends or LTCG, then it would be taxed at "preferential" rates, though trusts still would hit the highest of those rates at lower incomes. Your understanding seems to differ from mine--with no distinction made between different kinds of unearned income, so that all unearned income of a child is given the "preferential" treatment of qualified dividends. It would make me very happy if that were so. What do you think?)

Maybe if I explain the real situation, you can better help me with my questions. I really appreciate the links to actual tax code, but I still haven't been able to find the answer I need. I'm not the person who is in this situation, but I will write as though I am, since it makes it a little simpler.

My parents divorced when I was very young. Neither remarried. My father never provided any support. My father's tax returns always reported such small earnings as never to be required to pay taxes. (Because he earned so little, he didn't have to pay any child support.) My mother, who was my custodial parent when I was a minor and who earned a solidly middle-class income, died of cancer shortly after I turned 18. I was the sole beneficiary of her life insurance policy and of her retirement accounts. I also inherited our home, which I then sold. In short, my mother left me with the means to generate enough unearned income to support myself and go to college full-time. I work, but my earned income provides only a small part of my support. I do not live with my father at any time during the year. I have never lived with him. My mother is dead, so I don't live with her either. There is no parent I would normally live with if I weren't attending school. **So, I cannot truthfully do anything but leave f8615 lines A and B empty.**

But if I can't truthfully do anything but leave i8615 lines A and B empty, it seems likely that I'm not supposed to be filling it out at all. It seems like f8615 is intended only for people who are someone's QUALIFYING CHILD. But that's not what the "Who Must File" section of i8615 actually says. It says that it must be filed for ANYONE who meets the conditions. I do meet the conditions. I have more than $2100 of unearned income. I am required to file a tax return. I am a full-time student at least age 19 and under age 24 and didn't have earned income that was more than half of my support, at least one of my parents is alive, and I don't file a joint return. The rules are stated to apply whether or not I'm a dependent. I'm not a dependent (obviously, since I'm no one's qualifying child), so the rules apply. But if they apply, then that means that my unearned income (RMDs from my mother's retirement plans) will put me into the 37% marginal rate for trusts instead of the 12% rate for single individuals that it would otherwise put me in. All because some man I don't even know (my father) happens to be alive? It seems to me very unlikely that that's what tax law actually dictates. It seems much more likely that there's just a little bit of bad writing of i8615.

Maybe I could put my question this way. The f8615 tax is colloquially referred to as the "kiddie tax". I'm no one's kiddie. But the letter of the instructions subject me to the kiddie tax, since I am someone who meets its 5 conditions. Thank you in advance. I really appreciate your taking the time to help me.

[Carl]

Sally is a fully self-supporting student age 19....

This is a classic test question straight from the quizlet.com website. We don't answer test questions for students here. You'll need to do your own research and if you start at https://studentaid.ed.gov/sa/fafsa/filling-out/dependency you'll actually be able to find it yourself.

[805teresa]

I've never heard of quizlet until just now. This is a real-life situation. I guess that I shouldn't have initially worded my question in a way that managed to make it sound like a homework problem. I put it that way in an effort to avoid giving all the personal details that I eventually wound up giving. I hope you can understand. The link that you provided is to information about student aid—specifically concerning what it is to be a "dependent student for FAFSA purposes". I definitely AM a dependent student for FAFSA purposes. But, it's relevance to my tax question is in no way obvious. (I definitely AM NOT a dependent student for tax purposes.) So, I’m guessing you meant to post a different link. Otherwise, what you did would be like telling someone who wants to know if her AGI is low enough that she can contribute to a Roth IRA to look at the definition of "modified AGI for the purposes of the Child Tax Credit" instead of at the definition of "modified AGI for Roth IRA purposes". The two definitions of 'modified AGI' are very different Only the second has any obvious relevance to the Roth IRA question. If you did mean to post a different link, please post it. If not, then maybe you can tell me (now that you know I'm not a student looking for an answer to a test question) how you think the FAFSA definition is relevant to my tax question.

[805teresa]

@Carl 

It just hit me that you might have written what you did because you incorrectly assumed that the definition of "dependent student for FAFSA purposes" is the same as the definition of "dependent" + "student" for federal tax purposes. And so you might have thought that the FAFSA definition was relevant to my tax question. Is that what happened?

If so, then, to put things in your style, if you do your own research, you'll actually be able to discover for yourself that the two definitions are different. I agree wholeheartedly with your sentiment that students shouldn't simply be handed answers, but should have to work a bit for them. In my experience, students learn more this way. Still, unlike you, I don't see any harm in providing a student with some hints. So, I'll offer you the hint below.

Someone who is fully self-supporting can meet the definition of "dependent student for FAFSA purposes". Just go through the questions at the link you gave me (https://studentaid.ed.gov/sa/fafsa/filling-out/dependency), and you should be able to see this. But such a person cannot meet the definition of "dependent" (let alone "dependent" + "student") for federal tax purposes. Just go through pp. 20-21 of the 2018 i1040 (https://www.irs.gov/pub/irs-pdf/i1040gi.pdf), and you should be able to see this.

Is there really a question like mine on the quizlet.com website or did you just mean that my question SOUNDS like the test questions you've seen at quizlet.com? If there really is such a question, I'd love to see it. Maybe I can get ahold of the person who created the question. S/he may be able to help me.

[dmertz]

"So, I cannot truthfully do anything but leave f8615 lines A and B empty."

That is incorrect.  If you are subject to § 1(g), which you clearly are since you meet the criteria of § 1(g)(2), § 1(g)(6) requires you to provide a parent's name and Taxpayer Identification Number (generally, the parent's SSN) and requires that parent to provide you with the TIN.

[805teresa]

@dmertz 

That’s a pretty compelling case! In essence, I take it that you’re saying that the instructions for 8615 lines A and B are incorrect. Is that what you mean? (Those instructions would have me leave lines A and B black, since I did not live with either parent more.)

I have talked to a CPA who thinks that form 8815 is intended only for *qaulified children of US taxpayers*, so that it doesn’t apply to me or to a German student whose parents are German and not subject to US tax. Everyone here seems to disagree with that. The issue seems really to turn on what the definition of ‘child’ is for the purposes of 26 USC section 1(g). I haven’t been able to find the definition. Can you help?

[805teresa]

I meant to write ‘blank’ not ‘black’ and ‘8615’ not ‘8815’.