Report Tax Free Income for Children

[david-okeefe]

My children each earned over $1500 in 2024.  The earnings are split between tax free municipal bond interest (Box 8, >$1500), dividends (Box 1, <$100), and Bond Premium or Tax Exempt Bond income (Box 13, <$200).  Given that most of the income comes from tax free municipal bonds, do they need to file or do I need to income their income on my return?

[DianeW777]

It depends. They need to file or you need to include it on your tax return if  the taxable unearned income is over $1,300. As long as you know it's below that amount when the tax free interest is removed they do not need to file. See the specifics below and if they are not required to file, you do not need to include it on your tax return.

• IRS Publication 501 - Dependents filing requirements chart
  • Income: unearned income includes taxable interest, ordinary dividends, and capital gain distributions. It also includes unemployment compensation, taxable social security benefits, pensions, annuities, and distributions of unearned income from a trust. Earned income includes salaries, wages, tips, professional fees, and taxable scholarship and fellowship grants. Gross income is the total of your unearned and earned income.

[ThomasM125]

They likely do need to file a tax return since their unearned income is over $1,300. You can use this IRS tool to determine if they need to file a tax return: Do I need to file a tax return? 

You don't need to include their income on your return since it is under $2,300, but you can do so if you want.

You an learn more in this TurboTax article 

[JamesG1]

The children would likely file their own tax returns.

If you choose to include your child's income, the first $1,300 of their income isn't taxed, but the next $1,300 may be taxed at up to 10% in 2024.

The general rule is that a parent can claim a dependent child's investment income on their own return up to a certain amount —above that, the child needs to file themselves. 

To claim your child's income on your return, they must be a qualifying child dependent.

You can use IRS Form 8814 to report your child's income on your tax return instead of them filing a separate tax return.  You might find it easier and cheaper to include your dependent's income on your tax return.

See TurboTax Help here.

[LindaS5247]

If your child's only income is interest and dividend income (including capital gain distributions) that is less than $13,000, you may be able to elect to include that income on your return rather than file a return for your child.

You may be able to elect to report your child's interest, ordinary dividends, and capital gains distributions on your own tax return.

If you make this election, your child won't have to file a tax return.

To make this election, you would attach Form 8814 PDF to your Form 1040, Form 1040-SR or Form 1040-NR if your child meets all of the following conditions.

1. At the end of the tax year your child was under age 19 (or under age 24 if a full-time student).
2. Your child's gross income was less than $13,000 for the tax year.
3. Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends).
4. No estimated tax payments were made for your child for the tax year, and no overpayment from the previous tax year (or from any amended return) was applied to the current tax year under your child's name and Social Security number.
5. No federal income tax was withheld from your child's income under the backup withholding rules.
6. Your child is required to file a return unless you make this election.
7. Your child doesn't file a joint return for the tax year.
8. You're the parent qualified to make the election or you file a joint return with your child's other parent.

Click here for "Topic no. 553, Tax on a child's investment and other unearned income (kiddie tax)"

Click here for "Tax Filing Requirements for Children"