Why do I have to fill out a Form 8615

[LinaJ2020]

Without seeing your tax return, it's hard to say.  He is required to file the Form 8615 (Kiddie Tax) because his unearned income including unemployment compensation exceeds $2,200.  Part of his unemployment income will be taxed at the parent's rate (Part II on the Form 8615), which is higher than his own rate.  The original intention for the Form 8615 is to prevent parents from placing their funds under their children's investment accounts to avoid taxes.  His unemployment income is included in the Unearned Income for the Kiddie Tax purposes, unfortunately.  For more information, click here: Form 8615

With the capital gain, it depends on if it's short term or long term.  If it's long term, your tax rate will vary from 0-20%.  I am attaching the IRS link of Form 8615 below for your reference.  I will suggest you to view your Form 8615 to see if the numbers flow correctly especially in part II on the form.  

https://www.irs.gov/pub/irs-pdf/f8615.pdf

[ORblonde]

@LinaJ2020 Thanks for the response. I already paid tax on these CapGains, and they did not flow to him. But, it's required for me to input the number. These are long term CapGains. 

Is ALL of his Unemployment income subject to the tax, or only the amount after the $10,200 credit? If the former, then that makes sense (at least as far as the calculation goes), if it's the latter, then I'm still quite confused as to how he could owe more in taxes than his taxable income indicates. 😕 

[Bhaavya]

My daughter did a summer internship for which she got paid 7000$ on 1099-NEC.  There is no other income of any sort. Now, if I do not claim any expenses against this 1099-NEC, then it forces me to enter Form 8615,  it captures my name/ SSN but the tax liability is 0. However, if I go via Schedule C route then the tax due is 15%.

Now, I looked up whether she needs to file tax at all or can she skip it altogether, as she

(a) is 22 years old

(b) full time student in college

(c) I am not planning to claim her as my dependent on my tax form (as I do not meet the income criteria to get any child tax credit)

(c) has no other income of any sort

(d) no tax withheld, 

(e) did not signup for health insurance from market place (she has it through me)

(g) not eligible for earned income credit

when I key in all the above information on IRS website, it says that "You are not required to file a tax return because your income does not equal or exceed $12,400, nor do you owe any special taxes or have any special situations that require you to file".

Do you have any recommendation?

(a) to file with Form 8615 (with 0 tax due)

(b) don't file the tax

Thank you,

[SusanY1]

Form 8615 is the form for tax on unearned income.  Form 1099-NEC is a form that reports earned income, and it most cases this income must be reported on Schedule C (there are some limited exceptions, but they are fairly rare.) 

When a taxpayer has earned income on Form 1099-NEC, or self-employment income, the filing threshold is lowered to a net profit of $400 (Income less the expenses).  

Since her income is from self-employment (unless the income wasn't from work, and was some other sort of earnings that may have different treatment), then your daughter does have a requirement to file, and a requirement to pay self-employment tax.  

You can learn more about filing with self-employment income here: Self-employment income and deductions and here IRS Self-Employed Individuals Tax Center.

[moravian2021]

I am a full-time student and received nothing but W2's for my work over breaks and while in school. Why is it telling me that I have unearned income when I worked for a company for all of my jobs? I am being forced to fill out a form 8615 and it is reflecting that I have over four thousand dollars in unearned income. Since I have worked for someone else I obviously do not have unearned income so why must I fill out this form and say that I have unearned income?

[Vanessa A]

Do you have scholarship income that was greater than your tuition and expenses that you entered from your 1098-T?  If so, this would be unearned income.

If not, and you ONLY have income from employment, you would need to double check your entries to make sure you entered everything as W-2 and not in other areas.

[moravian2021]

Thank you for responding.

I do not have any scholarship money exceeding tuition. I have checked through my entries and have no information other than my W2 and my 1098T form. I will restart and see if I may have entered something wrong in the additional questions.

Thank you 

[RaifH]

If your Scholarship in Box 5 is exactly equal to your Tuition in Box 1 of Form 1098-T, TurboTax may be electing to use $4,000 of your tuition to make you eligible for the American Opportunity Credit. 

If this is the case, that $4,000 of tuition cannot be used as a qualifying expense for your scholarship and that scholarship gets added to your taxable income. However, if you had other expenses that the scholarship could cover besides tuition, then you can add those within the Form 1098-T screens. These expenses can include books and supplies. Other uses of the scholarship lead to it being considered taxable income, and you may have to fill out Form 8615. 

Please note that the requirement to file Form 8615 suggests you are eligible to be claimed as a dependent. Generally, it is the parents who include Form 1098-T on their tax return, with the sole exception being if you are eligible for the American Opportunity Credit but your parents' income makes them ineligible to claim it. In that case, you may claim it on your own return but your parents can't claim you on theirs. 

Although you may have to pay taxes on a portion of your scholarship income, claiming the American Opportunity Credit will yield a better tax outcome than not taxing your scholarship and not claiming the credit. 

[kbarga]

I can't figure out where unearned income is being brought in from.  Taxpayer is student and has no unearned income but it is generating form 8615 and won't delete.  

[kbarga]

I figured it out! YAY!

[Anonymous]

Turbo Tax is requiring this form for a return with no unearned income (capital loss actually). There is income from a partnership (k-1) where there was material participation. I have tried deleting the schedule and creating a new return with no luck. Has there been any fix for this? 

[JamesG1]

What income is reported is reported on the tax return?  Does the income reported meet the definition of unearned income?

IRS Publication 929 page 15 defines unearned income here.

Unearned income defined

Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually performed. It includes taxable interest, dividends, capital gains (including capital gain distributions), the taxable part of social security and pension payments, certain distributions from trusts, and unemployment compensation. Unearned income includes amounts produced by assets your child obtained with earned income (such as interest on a savings account into which you deposited wages).

IRS Form 8615 must be filed for any child who meets all of the following conditions.

1. The child had more than $2,200 of unearned income.
2. The child is required to file a tax return.
3. The child either:
   1. Was under age 18 at the end of 2021,
   2. Was age 18 at the end of 2021 and did not have earned income that was more than half of the child's support, or
   3. Was a full-time student at least age 19 and under age 24 at the end of 2021 and did not have earned income that was more than half of the child's support.
4. At least one of the child's parents was alive at the end of 2021.
5. The child does not file a joint return for 2021.

For children under age 18, unearned income over $2,200 is taxed at the parent's rate if the parent's rate is higher than the child's. If the child's unearned income is more than $2,200, use Form 8615 to figure the child's tax.

IRS Form 8615 is described here.

@User492794

[turn2]

For the criteria:  The child was a full-time student age 19-23 and does not have earned income that is more than half of the child's support.

What is considered "child's support"?  Do I add up the insurance, food, part of housing, tuition, etc?  Do I take a percentage of what the housing costs are for the household?

[AamilD]

Yes that is correct. You would add up all the costs and allocate it for what is spend on the child including insurance, food, housing and other costs.

Please visit What does "financially support another person" mean? for more information on this.

[turn2]

Thanks @AamilD for the quick response!  Extremely helpful