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.
Parent with different tax year.
If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that
ends in the child's tax year.
Parent's return information not known timely.
If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return
using estimates.
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.
Step 1. Figuring the Child's Net Investment Income (Form 8615, Part I)
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 Form 8615.
Line 1 (investment income).
If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Adjusted gross income is
shown on line 36 of Form 1040, line 22 of Form 1040A, or line 35 of Form 1040NR. Form 1040EZ and Form 1040NR-EZ 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 Alternate Worksheet for Line 1 of Form 8615 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 (including capital gain distributions), 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).
Nontaxable income.
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.
Example.
Amanda Black, age 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 received for work actually done. Her tax-exempt interest is not included because it is nontaxable.
Trust income.
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 $1,500 on line 2.
If the child does itemize deductions, enter on line 2 the larger of:
- $750 plus the child's itemized deductions that are directly connected with the production of investment income entered on line 1,
or
- $1,500.
Directly connected.
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 for more information.
Example 1.
Roger, age 12, has investment income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the
2%-of-adjusted-gross-income limit) that are directly connected with his investment income. His adjusted gross income is $8,000, which is entered on
line 36 of Form 1040 and on line 1 of Form 8615. Line 2 is $1,500 because that is more than the sum of $750 and his directly-connected itemized
deductions of $300.
Example 2.
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 (net of the 2%-of-adjusted-gross-income limit) 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). The amount on Line 2 is $1,800. This is the larger of:
- $750 plus the $1,050 of directly connected itemized deductions, or
- $1,500.
Line 3.
Subtract line 2 from line 1 and enter the result on this line. If zero or less, do not complete the rest of the form. However, you must still
attach Form 8615 to the child's tax return. Figure the tax on the child's taxable income in the normal manner.
Line 4 (child's taxable income).
Enter on line 4 the child's taxable income from Form 1040, line 41; Form 1040A, line 27; or Form 1040NR, line 39.
Line 5 (net investment income).
A child's net investment income cannot be more than his or her taxable income. Enter on line 5 the smaller of line 3 or line 4 of Form 8615. This
is the child's net investment income. If zero or less, do not complete the rest of the form. However, you must still attach Form 8615 to
the child's tax return. Figure the tax on the child's taxable income in the normal manner.
Step 2. Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II)
The tentative tax is the difference between the tax on the parent's taxable income figured with the child's net investment income (plus the net
investment income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it.
When figuring the tentative tax at the parent's tax rate, 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.
Figure the tentative tax on lines 6 through 13 of Form 8615.
Note.
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 of the 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.
Example.
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 will show $1,600 ($600 + $1,000), the total of the amounts on line 5 of Jerry's and Mike's Forms 8615.
Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000).
Line 7 of Mike's Form 8615 will 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 Parent's return information not known timely, earlier.
Line 11 (tentative tax).
Subtract line 10 from line 9 and enter the result on this line. This is the tentative tax.
If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13.
Lines 12a and 12b (dividing the tentative tax).
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.
Example.
In the earlier example under Line 7 (net investment income of other children), Sharon's Form 8615 shows $1,600 on line 7. The amount
entered on 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
Step 3. Figuring the Child's Tax (Form 8615, Part III)
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 Form 8615.
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 law. See
Alternative Minimum Tax in chapter 31.
For more information on who is liable for AMT and how to figure it, get Form 6251. For information on special limits that apply to a child who
files Form 6251, Alternative Minimum Tax - Individuals, see Alternative Minimum Tax in Publication 929.
Illustrated Example
The following example includes a completed Form 8615. Form 1040A is not shown.
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 $1,500 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 $1,500 on line 2. He enters $1,250 ($2,750
- $1,500) on line 3.
Sara's taxable income, as shown on line 27 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, $1,250, on line 5.
John enters $48,000 on line 6. This is the taxable income from line 41 of their joint Form 1040 return. Sara is an only child, so line 7 is blank.
He adds line 5 ($1,250), line 6 ($48,000), and line 7 (blank), and enters $49,250 on line 8.
Using the column for married filing jointly in the Tax Table, John finds the tax on $49,250. He enters the tax, $7,100 on line 9. He enters $6,763
on line 10. This is the tax from line 42 of John and Laura's Form 1040. He enters $337 on line 11 ($7,100 - $6,763).
Because line 7 is blank, John skips lines 12a and 12b and enters $337 on line 13.
John subtracts line 5 ($1,250) from line 4 ($2,500) and enters the result, $1,250, on line 14. Using the column for single filing status in the Tax
Table, John finds the tax on $1,250 and enters this tax, $126, on line 15. He adds lines 13 ($337) and 15 ($126) and enters $463 on line 16.
Using the column for single filing status in the Tax Table, John finds the tax on $2,500 ( line 4) and enters this tax, $251, on line 17.
John compares lines 16 and 17 and enters the larger amount, $463, on line 18 of Sara's Form 8615. He also enters that amount on line 28 of Sara's
Form 1040A.
John also completes Schedule 1 (Form 1040A) for Sara.
FormForms: 8615
Child and Dependent Care Credit
Important Change for 2002
New definition of earned income.
For tax years after 2001, earned income will no longer include employee compensation that is nontaxable.
Important Reminders
Taxpayer identification number needed for each qualifying person.
You must include on line 2 of Form 2441 or Schedule 2 (Form 1040A) the name and taxpayer identification number (generally the social security
number) of each qualifying person. See Taxpayer identification number under Qualifying Person Test, later.
You may have to pay employment taxes.
If you pay someone to come to your home and care for your dependent or spouse, you may be a household employer who has to pay employment taxes.
Usually, you are not a household employer if the person who cares for your dependent or spouse does so at his or her home or place of
business. See Employment Taxes for Household Employers, later.
Introduction
This chapter discusses the credit for child and dependent care expenses and covers the following topics.
- Tests you must meet to claim the credit.
- How to figure the credit.
- How to claim the credit.
- Employment taxes you may have to pay as a household employer.
You may be able to claim the credit if you pay someone to care for your dependent who is under age 13 or for your spouse or dependent who is not
able to care for himself or herself. The credit can be up to 30% of your expenses. To qualify, you must pay these expenses so you can work or look for
work.
This credit should not be confused with the Child Tax Credit discussed in chapter 35.
Dependent care benefits.
If you received any dependent care benefits from your employer during the year, you may be able to exclude from your income all or part of them.
You must complete Part III of Form 2441 or Schedule 2 (Form 1040A) before you can figure the amount of your credit. See Employer-Provided
Dependent Care Benefits under How To Figure the Credit, later.
Useful Items You may want to see:
Publication
- 501
Exemptions, Standard Deduction, and Filing Information
- 503
Child and Dependent Care Expenses
- 926
Household Employer's Tax Guide
Form (and Instructions)
- 2441
Child and Dependent Care Expenses
- Schedule 2 (Form 1040A)
Child and Dependent Care Expenses for Form 1040A Filers
- Schedule H (Form 1040)
Household Employment Taxes
- W-7
Application for IRS Individual Taxpayer Identification Number
- W-10
Dependent Care Provider's Identification and Certification
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