UTMA Taxes - Child's tax return

[ay-ay-ron]

Hi - preparing my dependent daughter's 2024 federal return. She has $3128 in W2 income and $1049 in UTMA dividends and interest. Turbotax Premier appears to be including the $1049 in her total income (I conclude this by looking at the return w/ and w/o the 1099-DIV/ 1099-INT). I think the $1049 should be taxed at a 0% rate but that does not appear to be the case.

I have run the return (with the 1099-DIV/ INT) all the way through error check and it is "clean". But I don't see anywhere that the UTMA is noted for the 1099-DIV/INT. How do I get confirmation this is being treated correctly?

[rjs]

Only qualified dividends are taxed at the 0% rate. All interest, and dividends that are not qualified dividends, are taxed at ordinary income rates.

All income is included in the total income on Form 1040. That does not mean that you are actually paying tax on all of it. The tax calculation takes the 0% rate into account. To see how the tax is calculated you have to look at the worksheet where the calculation is done. Depending on what is in the tax return, the tax is probably calculated on the Qualified Dividends and Capital Gain Tax Worksheet, or possibly the Schedule D Tax Worksheet.

[ay-ay-ron]

Thanks. It looks like the standard deduction worksheet is taking her earned income and adding $450 to it because her earned income is >$850. That becomes her standard deduction because it is less than single ($14,600). So with some earned income she's effectively getting $450 of the UTMA INT/DIV at 0% and then the balance at her lower tax rate...

[rjs]

The standard deduction is not the only thing that reduces her tax.

To be very technical, there's a difference between income that is not taxed and income that is taxed at the 0% rate. The standard deduction does not represent the 0% tax rate. The standard deduction amount is not taxed at all. The taxable income on Form 1040 line 15 is what's left after subtracting the standard deduction from total income. Technically all of the taxable income is taxed, but some of it may be taxed at the 0% rate. So part of her income may still be benefiting from the 0% tax rate. It depends on the amounts in the boxes 1a, 1b, and 2a of her 1099-DIV. You have to look at the Qualified Dividends and Capital Gain Tax Worksheet. Line 9 of that worksheet shows how much of the taxable income is being taxed at 0%.