When to file a child return

[bujeeez]

Hi. Please clarify that my info is correct. If a child has a UTMA and makes less than $1,100 per year in stock profit, they dont need to file their own return . If they make between $1,100 and $2,200 in stock profit, they need to file their own return but wont be taxed. Over $2,200, they are taxed. Is that right? Thanks

[FangxiaL]

You are correct, if a child has a UTMA and makes $1,100 or less per year in unearned income such as stock profit, they don't need to file their own return.

But if a child makes between $1,101 and $2,200 in unearned income, the first $1,100 is tax-exempt (similar to our standard deduction), the rest is taxed at the child's tax rate, which is 10%.  

And if a child's unearned income is over $2,200, the net unearned income (the unearned income - $2,200) is taxed at the parent's marginal tax rate. 

[bujeeez]

Thanks for your reply.

From looking at the 8615 form, irs.gov/pub/irs-pdf/f8615.pdf,  it seems you are incorrect. Line 1 asks for unearned income. Line 2 says to enter $2,200 if there are no itemized deductions. Line 3 says to subtract Line 2 from Line 1. That means, that anything under $2,200 is not taxable. However, do i still need to file a return for them if the unearned income is under $2,200? Any professionals that can weigh in would be appreciated. Thanks

[DawnC]

The first $1100 is not taxed, the next $1100 is taxed at the child's tax rate, which will be lower than yours.   And anything over $2200 is taxed at either your tax rate or the child's - whichever is higher.   So, the amount between $1101 and $2200 is taxable, but at the child's tax rate.  

The tax changes for 2020 and 2021 now make the Kiddie Tax revert back to using the parental rates, instead of the rates for estates and trusts like in 2018 and 2019 above.

Remember that the Kiddie Tax only applies to unearned income in excess of $2,200.  Here’s an illustration of how a child's unearned income in 2021 would be taxed:

1. $0 - $1,100 isn't taxed - the dependent standard deduction is $1100, see below
2. $1,100 - $2,200 is taxed at the child’s tax rate
3. Over $2,200 is taxed at the parents’ rate (or the child’s rate if it's higher)

If you can be claimed as a dependent by another taxpayer, your standard deduction for 2021 is limited to the greater of: (1) $1,100, or (2) your earned income plus $350 (but the total can't be more than the basic standard deduction for your filing status).

[bujeeez]

What is the child's tax rate if their total income is under $2,200? Thanks

[DawnC]

10% - for taxable income up to $9,950.   

[bujeeez]

Then why does form 8615 have on Line 2 that $2,200 should be deducted off the unearned income of Line 1?

[RobertB4444]

Form 8615 is attached to the child's tax return in order to figure the tax rate that the child will be taxes at if they have unearned income over $2200.  To be clear, they still have to file a 1040 if they have unearned income over $1100.  Then, the 8615 is filled out.  If they have income under $2200 then the 8615 does not have to be filled out, although the IRS still wants it attached to the return.  If the child has unearned income OVER $2200 then the second half of the 8615 has to be filled out figuring the parents' tax rate to be applied to the child's unearned income.