Pub. 17, Chapter 32 - Tax on Investment Income of Certain Minor Children
You may be able to elect to include your child's interest and
dividend income (including capital gain distributions) on your tax
return. If you do, your child will not have to file a return.
You can make this election for 1999 only if all the
following conditions are met.
- Your child was under age 14 on January 1, 2000.
- Your child is required to file a return for 1999 unless you
make this election.
- Your child had income only from interest and dividends
(including capital gain distributions and Alaska Permanent Fund
dividends).
- The dividend and interest income was less than
$7,000.
- No estimated tax payment was made for 1999 and no 1998
overpayment was applied to 1999 under your child's name and social
security number.
- No federal income tax was taken out of your child's income
under the backup withholding rules.
- You are the parent whose return must be used when applying
the special tax rules for children under 14. (See Which Parent's
Return To Use, earlier.)
These conditions are also shown in Figure 32-A.
Figure 32-A. Can You Include Your Child's Income On Your Tax Return?
How to make the election.
Make the election by attaching Form 8814 to your Form
1040 or Form 1040NR. Attach a separate Form 8814 for each child for
whom you make the election. You can make the election for one or more
children and not for others.
If you file Form 8814, you cannot file Form 1040A or Form 1040EZ.
Effect of Making the Election
The federal income tax on your child's income may be more if you
make the Form 8814 election rather than file a return for the child.
Rates may be higher.
If you use Form 8814, the child's income may be taxed at a higher
rate on your return than it would be on the child's own return.
Deductions you cannot take.
By making the Form 8814 election, you cannot take any of the
following deductions the child would be entitled to on his or her
return.
- The higher standard deduction for a blind child.
- The deduction for a penalty on an early withdrawal of your
child's savings.
- Itemized deductions (such as your child's investment
expenses or charitable contributions).
Reduced deductions or credits.
If you use Form 8814, your increased adjusted gross income may
reduce certain deductions or credits on your return. These include
your deduction for contributions to a traditional individual
retirement arrangement (IRA), itemized deductions for medical
expenses, casualty and theft losses, and certain miscellaneous
expenses. Your increased adjusted gross income may also reduce your
child tax credit, education credit, or earned income credit.
Penalty for underpayment of estimated tax.
If you make this election for 1999 and did not have enough tax
withheld or pay enough estimated tax to cover the tax you owe, you may
be subject to a penalty. If you plan to make this election for 2000,
you may need to increase your federal income tax withholding or your
estimated tax payments to avoid the penalty. See chapter 5
for more
information.
Figuring Child's Income
Use Part I of Form 8814 to figure your child's interest
and dividend income to report on your return. Only the amount over
$1,400 is added to your income. This amount is shown on line 6 of Form
8814. Include this amount on line 21 of Form 1040 or Form 1040NR.
Write "Form 8814" in the space next to line 21. If you file more
than one Form 8814, include the total amounts from line 6 of all your
Forms 8814 on line 21.
Capital gain distributions.
If your child's dividend income included any capital gain
distributions, see Capital gain distributions, under
Figuring Child's Income in Publication 929.
Figuring Additional Tax
Use Part II of Form 8814 to figure the tax on the $1,400
of your child's interest and dividends that you do not include in your
income. This tax is added to the tax figured on your income.
This additional tax is the smaller of:
- 15% � (your child's gross income - $700),
or
- $105.
Include the amount from line 9 of all your Forms 8814 in the total
on line 40, Form 1040, or line 39, Form 1040NR. Check box a on Form
1040, line 40, or Form 1040NR, line 39.
Illustrated Example
David and Linda Parks are married and will file separate tax
returns for 1999. Their only child, Philip, is 8. Philip received a
Form 1099-INT showing $3,200 taxable interest income and a Form
1099-DIV showing $300 ordinary dividends. His parents decide to
include that income on one of their returns so they will not have to
file a return for Philip.
First, David and Linda each figure their taxable income (Form 1040,
line 39) without Philip's income. David's taxable income is $41,700
and Linda's is $59,300. Because her taxable income is greater, Linda
can elect to include Philip's income on her return.
On Form 8814, Linda enters her name and social security number,
then Philip's name and social security number. She enters Philip's
taxable interest income, $3,200, on line 1a. Philip had no tax-exempt
interest income, so she leaves line 1b blank. Linda enters Philip's
ordinary dividends, $300, on line 2. Philip did not have any capital
gain distributions, so she leaves line 3 blank.
Linda adds lines 1a and 2 and enters the result, $3,500, on line 4.
From that amount she subtracts the $1,400 base amount shown on line 5
and enters the result, $2,100, on line 6. This is the part of Philip's
income that Linda must add to her income.
Linda includes the $2,100 in the total on line 21 of her Form 1040
and in the space next to that line prints "Form 8814 - $2,100."
Adding that amount to her income increases each of the amounts on
lines 22, 33, 34, 37, and 39 of her Form 1040 by $2,100. Linda is not
claiming any deductions or credits that are affected by the increase
to her income. Therefore, her revised taxable income on line 39 is
$61,400 ($59,300 + $2,100).
On Form 8814, Linda subtracts the $700 shown on line 7 from the
$3,500 on line 4 and enters the result, $2,800, on line 8. Because
that amount is not less than $700, she enters $105 on line 9. This is
the tax on the first $1,400 of Philip's income, which Linda did not
have to add to her income. She must add this additional tax to the tax
figured on her revised taxable income.
The tax on her $61,400 revised taxable income is $14,683. She adds
$105, and enters the $14,788 total on line 40 of Form 1040, and checks
box a.
Linda attaches Form 8814 to her Form 1040.
Filled-in Form 8814 for Linda Parks
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