IRS Pub. 17, Your Federal Income Tax
Part of a child's 1998 investment income may be subject to tax at
the parent's tax rate if:
- The child was under age 14 on January 1, 1999,
- The child's investment income was more than $1,400,
- The child is required to file a return for 1998.
illustrates these requirements.
If you do not or cannot choose to include the child's income on
your return, figure the child's tax on Form 8615. Attach
the form to the child's Form 1040, Form 1040A, or Form 1040NR.
On Form 8615, enter your name and social security number and your
child's name and social security number in the spaces provided. (If
you filed a joint return, enter the name and social security number
listed first on the joint return.) Check the box for your filing
status. Then figure the child's tax on Form 8615 in these steps:
- 1. Figure the child's net investment
- 2. Figure a tentative tax on the net investment
income based on the parent's tax rate.
- 3. Figure the child's tax.
Figure 32-B. Do You Have To Use Form 8615 To Figure Your Child's Tax?
Alternative minimum tax.
A child may be subject to alternative minimum tax (AMT) if he or
she has certain items given preferential treatment under the tax laws
or certain adjustments to taxable income that total more than an
exemption amount. See Alternative Minimum Tax in chapter 31.
AMT is figured on Form 6251. For information on special limits that
apply to a child who files Form 6251, see Alternative Minimum Tax
in Publication 929.
See Which Parent's Return To Use, at the beginning of
this chapter, for information on which parent's return information
must be used on Form 8615.
Different tax years.
If you and the child do not have the same tax year, complete Form
8615 using the information on your return for the tax year that ends
in the child's tax year.
If the information needed from your return is not known by the time
the child's return is due (usually April 15), you can file the return
You can use any reasonable estimate. This includes using
information from last year's return. If you use an estimated amount on
Form 8615, write "Estimated" on the line next to the amount.
When you get the correct information, file an amended return on
Form 1040X, Amended U.S. Individual Income Tax Return.
Instead of using estimated information, you may want to request an
extension of time to file. Extensions are discussed in chapter 1.
Part I. Figuring
Net Investment Income
The first step in figuring a child's tax using Form 8615 is to
figure the child's net investment income. To do that, use Part I of
Line 1 (investment income).
If the child had no earned income, enter the adjusted
gross income shown on the child's return. Adjusted gross income is
shown on line 33 of Form 1040; line 18 of Form 1040A; or line 33 of
Form 1040NR. Form 1040EZ cannot be used if Form 8615 must be filed.
If the child had earned income, figure the amount to
enter on line 1 of Form 8615 by using the worksheet in the
instructions for the form.
However, if the child has excluded any foreign earned income or
deducted either a loss from self-employment or a net operating loss
from another year, use the worksheet in Publication 929
to figure the
amount to enter on line 1 of Form 8615.
Investment income defined.
Investment income is generally all income other than salaries,
wages, and other amounts received as pay for work actually done. It
includes taxable interest, dividends, capital gains, the taxable part
of social security and pension payments, and certain distributions
from trusts. Investment income includes amounts produced by assets the
child obtained with earned income (such as interest on a savings
account into which the child deposited wages).
For this purpose, investment income includes only amounts that the
child must include in total income. Nontaxable investment income, such
as tax-exempt interest and the nontaxable part of social security and
pension payments, is not included.
Income from property received as a gift.
A child's investment income includes all income produced by
property belonging to the child. This is true even if the property was
transferred to the child regardless of when the property was
transferred or purchased or who transferred it.
A child's investment income includes income produced by property
given as a gift to the child. This includes gifts to the child from
grandparents or any other person and gifts made under the Uniform Gift
to Minors Act.
Amanda Black, 13, received the following income:
- Dividends -- $600
- Wages -- $2,100
- Taxable interest -- $1,200
- Tax-exempt interest -- $100
- Net capital gains -- $100.
The dividends were on stock given to her by her grandparents.
Amanda's investment income is $1,900. This is the total of the
dividends ($600), taxable interest ($1,200), and net capital gains
($100). Her wages are earned (not investment) income because they are
pay received for work actually done. Her tax-exempt interest is not
included because it is nontaxable.
If a child is the beneficiary of a trust, distributions of taxable
interest, dividends, capital gains, and other investment income from
the trust are investment income to the child.
Line 2 (deductions).
If the child does not itemize deductions on Schedule A (Form 1040
or Form 1040NR), enter $1,400 on line 2.
If the child does itemize deductions, enter on line 2 the larger
- $700 plus the child's itemized deductions on Schedule A
(Form 1040 or Form 1040NR) that are directly connected with the
production of investment income, or
Itemized deductions are directly connected with the production of
investment income if they are for expenses paid to produce or collect
taxable income or to manage, conserve, or maintain property held for
producing income. These expenses include custodian fees and service
charges, service fees to collect taxable interest and dividends, and
certain investment counsel fees.
These expenses are added to certain other miscellaneous deductions
on Schedule A (Form 1040). Only the amount greater than 2% of the
child's adjusted gross income can be deducted. See chapter 30
Roger, 12, has investment income of $8,000, no other income, no
adjustments to income, and itemized deductions of $300 that are
directly connected with his investment income. His adjusted gross
income is $8,000, which is entered on line 1. Line 2 is $1,400 because
that is more than the sum of $700 and his directly-connected itemized
deductions of $300.
Eleanor, 8, has investment income of $16,000 and an early
withdrawal penalty of $100. She has no other income. She has itemized
deductions of $1,050 that are directly connected with the production
of her investment income. Her adjusted gross income, entered on line
1, is $15,900 ($16,000 - $100). Line 2 is $1,750. This is the
- $700 plus the $1,050 of directly connected itemized
Eleanor's net investment income is $14,150 ($15,900 -
Part II. Figuring
Tentative Tax at
Parent's Tax Rate
The tentative tax is the difference between the tax on the parent's
taxable income figured with the child's net investment income and the
tax figured without it. Figure it on lines 6 through 13 of Form 8615.
When figuring the tentative tax, do not refigure any of the
exclusions, deductions, or credits on the parent's return because of
the child's net investment income. For example, do not refigure the
medical expense deduction.
If the child has any capital gains or losses, get Publication 929
for help in completing Part II of Form 8615.
Line 7 (net investment income of other children).
If the tax return information of the parent is also used on any
other child's Form 8615, enter on line 7 the total amounts from line 5
of all the other children's Forms 8615. Do not include the amount from
line 5 of the Form 8615 being completed.
Paul and Jane Persimmon have three children, Sharon, Jerry, and
Mike, who must attach Form 8615 to their tax returns. The children's
net investment income amounts on line 5 of their Forms 8615 are:
- Sharon -- $800
- Jerry -- $600
- Mike -- $1,000
Line 7 of Sharon's Form 8615 would show $1,600, the total of the
amounts on line 5 of Jerry's and Mike's Forms 8615.
Line 7 of Jerry's Form 8615 would show $1,800 ($800 + $1,000).
Line 7 of Mike's Form 8615 would show $1,400 ($800 + $600).
Other children's information not available.
If the net investment income of the other children is not available
when the return is due, either file the return using estimates or get
an extension of time to file. See Estimated information,
Lines 12a and 12b (dividing the tentative tax).
If line 7 is blank, skip lines 12a and 12b and enter the amount
from line 11 on line 13.
If an amount is entered on line 7, divide the tentative tax shown
on line 11 among the children according to each child's share of the
total net investment income. This is done on lines 12a, 12b, and 13.
Add the amount on line 7 to the amount on line 5 and enter the total
on line 12a. Divide the amount on line 5 by the amount on line 12a and
enter the result as a decimal on line 12b.
In the earlier example under Line 7 (net investment income of
other children), Sharon's Form 8615 shows $1,600 on line 7. Line
12a is $2,400, the total of lines 5 and 7 ($800 + $1,600). The decimal
on line 12b is .333, figured as follows and rounded to three places.
ch 32 formula 1
Part III. Figuring
the Child's Tax
The final step in figuring a child's tax using Form 8615 is to
determine the larger of:
- The total of:
- The child's share of the tentative tax based on the parent's
tax rate, plus
- The tax on the child's taxable income in excess of net
investment income, figured at the child's tax rate, or
- The tax on the child's taxable income, figured at the
child's tax rate.
This is the child's tax. It is figured on lines 14 through 18 of
The following example includes a completed Form 8615.
John and Laura Brown have one child, Sara. She is 13 and has $2,750
taxable interest and dividend income and $1,500 earned income. She
does not itemize deductions. John and Laura file a joint return with
John's name and social security number listed first. They claim three
exemptions, including an exemption for Sara, on their return.
Because Sara is under age 14 and has more than $1,400 investment
income, part of her income may be subject to tax at her parents' rate.
A completed Form 8615 must be attached to her return.
Sara's father, John, fills out Sara's return for her.
John enters his name and social security number on Sara's Form 8615
because his name and number are listed first on the joint return he
and Laura are filing. He checks the box for married filing jointly.
He enters Sara's investment income, $2,750, on line 1. Sara does
not itemize deductions, so John enters $1,400 on line 2. He enters
$1,350 on line 3 ($2,750 - $1,400).
Sara's taxable income, as shown on line 24 of her Form 1040A, is
$2,500. This is her total income ($4,250) minus her standard deduction
($1,750). Her standard deduction is limited to the amount of her
earned income plus $250. John enters $2,500 on line 4.
John compares lines 3 and 4 and enters the smaller amount, $1,350,
on line 5.
John enters $48,000 on line 6. This is the taxable income from line
39 of their joint Form 1040 return. Sara is an only child, so line 7
is blank. He adds line 5 ($1,350), line 6 ($48,000), and line 7 and
enters $49,350 on line 8.
Using the column for married filing jointly in the Tax Table, John
finds the tax on $49,350. He enters the tax, $8,320, on line 9. He
enters $7,942 on line 10. This is the tax from line 40 of John and
Laura's Form 1040. He enters $378 on line 11 ($8,320 - $7,942).
Because line 7 is blank, John skips lines 12a and 12b and enters
$378 on line 13.
John subtracts line 5 ($1,350) from line 4 ($2,500) and enters the
result, $1,150, on line 14. Using the column for single filing status
in the Tax Table, John finds the tax on $1,150. He enters this tax,
$174, on line 15. He adds lines 13 ($378) and 15 ($174) and enters
$552 on line 16.
Using the column for single filing status in the Tax Table, John
finds the tax on $2,500 (line 4). He enters this tax, $377, on line
John compares lines 16 and 17 and enters the larger amount, $552,
on line 18 of Sara's Form 8615. He also enters that amount on line 25
of Sara's Form 1040A.
John also completes Schedule 1 (Form 1040A), for Sara.
Previous | First | Next
Publication 17 | 1998 Tax Year Archives | Tax Help Archives | Home