Publication 929: Tax Rules for Children and Dependents; Publication 929 Main Contents

This is archived information that pertains only to the 2003 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

This part of the publication discusses the filing requirements for dependents, who is responsible for a child's return, how to figure a dependent's standard deduction and exemption (if any), and whether a dependent can claim exemption from federal income tax withholding.

Whether a dependent has to file a return generally depends on the amount of the dependent's earned and unearned income and whether the dependent is married, is age 65 or older, or is blind.

A dependent may have to file a return even if his or her income is below the amount that would normally require a return. See Other Filing Requirements, later.

To find out whether a dependent must file, read the section that applies, or use Table 1 on the next page.

A dependent must file a return if all his or her income is earned income, and the total is more than the amount listed in the following table.

Example.

William is 16. His mother claims an exemption for him on her income tax return. He worked part time on weekends during the school year and full time during the summer. He earned $5,600 in wages. He did not have any unearned income.

He must file a tax return because he has earned income only and his total income is more than $4,700. If he were blind, he would not have to file a return because his total income is not more than $5,850.

A dependent must file a return if all his or her income is unearned income, and the total is more than the amount listed in the following table.

Example.

Sarah is 18 and single. Her parents can claim an exemption for her on their income tax return. She received $850 of taxable interest and dividend income. She did not work during the year.

She must file a tax return because she has unearned income only and her total income is more than $750. If she were blind, she would not have to file a return because she has unearned income only and her total income is not more than $1,900.

Election to report child's unearned income on parent's return.

A parent of a child under age 14 may be able to elect to include the child's interest and dividend income on the parent's return. See Parent's Election To Report Child's Interest and Dividends in Part 2. If the parent makes this election, the child does not have to file a return.

A dependent who has both earned and unearned income generally must file a return if the total income is more than line 5 of the following worksheet.

Filing Requirement Worksheet
for Most Dependents
1.	Enter dependent's earned income plus $250
2.	Minimum amount			$750
3.	Compare lines 1 and 2. Enter the larger amount
4.	Enter the appropriate amount from the following table
		Marital Status	Amount
		Single	$4,700
		Married	$3,925
5.	Compare lines 3 and 4. Enter the smaller amount
6.	Enter the dependent's gross (total) income
If line 6 is more than line 5, the dependent must file an income tax return. If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if gross income is $5 or more.

Table 1 Filing Requirements for Dependents

Example 1.

Joe is 20, single, not blind, and a full-time college student. His parents provide most of his support and claim an exemption for him on their income tax return. He received $200 taxable interest income and earned $2,750 from a part-time job.

He does not have to file a tax return because his total income of $2,950 ($200 interest plus $2,750 in wages) is not more than $3,000, the amount on line 5 of his filled-in Filing Requirement Worksheet for Most Dependents (shown next).

Filing Requirement Worksheet
for Most Dependents
1.	Enter dependent's earned income plus $250			$ 3,000
2.	Minimum amount			750
3.	Compare lines 1 and 2. Enter the larger amount			3,000
4.	Enter the appropriate amount from the following table			4,700
		Marital Status	Amount
		Single	$4,700
		Married	$3,925
5.	Compare lines 3 and 4. Enter the smaller amount			3,000
6.	Enter the dependent's gross (total) income			$ 2,950
If line 6 is more than line 5, the dependent must file an income tax return. If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if gross income is $5 or more.

Example 2.

The facts are the same as in Example 1 except that Joe had $600 taxable interest income.

He must file a tax return because his total income of $3,350 ($600 interest plus $2,750 wages) is more than $3,000, the amount on line 5 of his filled-in worksheet (shown next).

Filing Requirement Worksheet
for Most Dependents
1.	Enter dependent's earned income plus $250			$ 3,000
2.	Minimum amount			750
3.	Compare lines 1 and 2. Enter the larger amount			3,000
4.	Enter the appropriate amount from the following table			4,700
		Marital Status	Amount
		Single	$4,700
		Married	$3,925
5.	Compare lines 3 and 4. Enter the smaller amount			3,000
6.	Enter the dependent's gross (total) income			$ 3,350
If line 6 is more than line 5, the dependent must file an income tax return. If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if gross income is $5 or more.

Age 65 or older or blind. A dependent who is age 65 or older or blind must file a return if his or her gross (total) income is more than line 7 of the following worksheet.

Filing Requirement Worksheet
for Dependents
Who Are Age 65 or Older or Blind
1.	Enter dependent's earned income plus $250
2.	Minimum amount			$750
3.	Compare lines 1 and 2. Enter the larger amount
4.	Enter the appropriate amount from the following table
	Marital Status		Amount
	Single		$4,700
	Married		$3,925
5.	Compare lines 3 and 4. Enter the smaller amount
6.	Enter the amount from the following table that applies to the dependent
	Marital Status		Amount
	Single
		Either 65 or older or blind	$1,150
		65 or older and blind	$2,300
	Married
		Either 65 or older or blind	$ 900
		65 or older and blind	$1,800
7.	Add lines 5 and 6. Enter the total
8.	Enter the dependent's gross (total) income
If line 8 is more than line 7, the dependent must file an income tax return. If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if gross income is $5 or more.

Example 3.

The facts are the same as in Example 2 except that Joe is also blind. He does not have to file a return because his total income of $3,350 is not more than $4,150, the amount on line 7 of his filled-in Filing Requirement Worksheet for Dependents Who Are Age 65 or Older or Blind (shown next).

Filing Requirement Worksheet
for Dependents
Who Are Age 65 or Older or Blind
1.	Enter dependent's earned income plus $250		$3,000
2.	Minimum amount		750
3.	Compare lines 1 and 2. Enter the larger amount		3,000
4.	Enter the appropriate amount from the following table		4,700
	Marital Status	Amount
	Single	$4,700
	Married	$3,925
5.	Compare lines 3 and 4. Enter the smaller amount		3,000

6.	Enter the amount from the following table that applies to the dependent			1,150
	Marital Status		Amount
	Single
		Either 65 or older or blind	$1,150
		65 or older and blind	$2,300
	Married
		Either 65 or older or blind	$ 900
		65 or older and blind	$1,800
7.	Add lines 5 and 6. Enter the total			4,150
8.	Enter the dependent's gross (total) income			$3,350
If line 8 is more than line 7, the dependent must file an income tax return. If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if gross income is $5 or more.

Some dependents may have to file a tax return even if their income is below the amount that would normally require them to file a return.

Spouse itemizes.

A dependent must file a return if the dependent's spouse itemizes deductions on a separate return and the dependent has $5 or more of gross income (earned and/or unearned).

Even if a dependent does not meet any of the filing requirements discussed earlier, he or she should file a tax return if either of the following applies.

Generally, the child is responsible for filing his or her own tax return and for paying any tax, penalties, or interest on that return. If a child cannot file his or her own return for any reason, such as age, the child's parent or guardian is responsible for filing a return on his or her behalf.

Signing the child's return.

If the child cannot sign his or her return, a parent or guardian can sign the child's name in the space provided at the bottom of the tax return. Then, he or she should add: “By (signature), parent (or guardian) for minor child.”

Authority of parent or guardian.

A parent or guardian who signs a return on a child's behalf can deal with the IRS on all matters connected with the return.

In general, a parent or guardian who does not sign the child's return can only provide information concerning the child's return and pay the child's tax. That parent or guardian is not entitled to receive information from the IRS or legally bind the child to a tax liability arising from the return.

Third party designee.

A child's parent or guardian who does not sign the child's return may be authorized, as a third party designee, to discuss the processing of the return with the IRS as well as provide information concerning the return. The child or the person signing the return on the child's behalf must check the “Yes” box in the “Third Party Designee” area of the return and name the parent or guardian as the designee.

If designated, a parent or guardian can respond to certain IRS notices and receive information about the processing of the return and the status of a refund or payment. This designation does not authorize the parent or guardian to receive any refund check, bind the child to any tax liability, or otherwise represent the child before the IRS. See the return instructions for more information.

Designated as representative.

A parent or guardian who does not sign the child's return may be designated as the child's representative by the child or the person signing the return on the child's behalf. Form 2848, Power of Attorney and Declaration of Representative, is used to designate a child's representative. See Publication 947, Practice Before the IRS and Power of Attorney, for more information.

If designated, a parent or guardian can receive information about the child's return but cannot legally bind the child to a tax liability unless authorized to do so by the law of the state in which the child lives.

IRS notice.

If you or the child receives a notice from the IRS concerning the child's return or tax liability, you should immediately inform the IRS that the notice concerns a child. The notice will show who to contact. The IRS will try to resolve the matter with the parent(s) or guardian(s) of the child consistent with their authority.

Child's earnings.

For federal income tax purposes, the income a child receives for his or her personal services (labor) is the child's, even if, under state law, the parent is entitled to and receives that income.

If the child does not pay the tax due on this income, the parent may be liable for the tax.

Child's expenses.

Deductions for payments that are due to the child's earnings are the child's, even if the payments are made by the parent.

Example.

You made payments on your child's behalf that are deductible as a business expense and a charitable contribution. You made the payments out of your child's earnings. These items can be deducted only on the child's return.

The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the larger of:

However, the standard deduction for a dependent who is age 65 or older or blind is higher.

Certain dependents cannot claim any standard deduction. See Standard Deduction of Zero, later.

Table 2.

Use Table 2 above to figure the dependent's standard deduction.

Table 2. Standard Deduction Worksheet for Dependents

Example 1.

Michael is single, age 15, and not blind. His parents can claim him as a dependent on their tax return. He has taxable interest income of $800 and wages of $150. He enters $400 (his earned income plus $250) on line 1 of Table 2. On line 3, he enters $750, the larger of $400 or $750. Michael enters $4,700 on line 4. On line 5a, he enters $750, the smaller of $750 or $4,700. His standard deduction is $750.

Example 2.

Judy, a full-time student, is single, age 22, and not blind. Her parents can claim her as a dependent on their tax return. She has dividend income of $275 and wages of $2,500. She enters $2,750 (her earned income plus $250) on line 1 of Table 2. On line 3, she enters $2,750, the larger of $2,750 or $750. She enters $4,700 on line 4. On line 5a, she enters $2,750 (the smaller of $2,750 or $4,700) as her standard deduction.

Example 3.

Amy, who is single, is claimed as a dependent on her parents' tax return. She is 18 and blind. She has taxable interest income of $1,000 and wages of $2,000. She enters $2,250 (her earned income plus $250) on line 1 of Table 2. She enters $2,250 (the larger of $2,250 or $750) on line 3, $4,700 on line 4, and $2,250 (the smaller of $2,250 or $4,700) on line 5a. Because Amy is blind, she checks the box for blindness and enters “1” in box c at the top of Table 2. She enters $1,150 (the number in box c times $1,150) on line 5b . Her standard deduction on line 5c is $3,400 ($2,250 + $1,150).

A person who can be claimed as a dependent on another taxpayer's return cannot claim his or her own exemption. This is true even if the other taxpayer does not actually claim the exemption.

Employers generally withhold federal income tax, social security tax, and Medicare tax from an employee's wages. If the employee claims exemption from withholding on Form W–4, the employer will not withhold federal income tax. The exemption from withholding does not apply to social security and Medicare taxes.

Conditions for exemption from withholding.

An employee can claim exemption from withholding for 2003 only if he or she meets both of the following conditions.

For 2002, the employee had a right to a refund of all federal income tax withheld because he or she had no tax liability.
For 2003, the employee expects a refund of all federal income tax withheld because he or she expects to have no tax liability.

Dependents.

An employee who is a dependent ordinarily cannot claim exemption from withholding if both of the following are true.

The employee's total income will be more than the minimum standard deduction amount. This amount was $750 for 2002, but may be higher for 2003. Check the instructions for the 2003 Form W–4 for the correct amount.
The employee's unearned income will be more than $250.

Exceptions.

An employee who is age 65 or older or blind, or who will claim adjustments to income, itemized deductions, or tax credits on his or her 2003 tax return, may be able to claim exemption from withholding even if the employee is a dependent. For more information, see the discussions under Exemption From Withholding in chapter 1 of Publication 505, Tax Withholding and Estimated Tax.

Example.

Guy is 17 and a student. During the summer he works part time at a grocery store. He expects to earn about $1,000 this year. He also worked at the store last summer and received a refund of all his withheld income tax because he did not have a tax liability. The only other income he expects during the year is $275 interest on a savings account. He expects that his parents will be able to claim him as a dependent on their tax return. He is not blind and will not claim adjustments to income, itemized deductions, or tax credits on his return.

Guy cannot claim exemption from withholding when he fills out Form W–4 because his parents will be able to claim him as a dependent, his total income will be more than $750, the minimum standard deduction amount, and his unearned income will be more than $250.

Claiming exemption from withholding.

To claim exemption from withholding, an employee must write “EXEMPT” in the space provided on Form W–4. The employee must complete the rest of the form, as explained in the form instructions, and give it to his or her employer.

Renewing an exemption from withholding.

An exemption from withholding is good for only one year. An employee must file a new Form W–4 by February 15 each year to continue the exemption.

Terms you may need to know (see Glossary):

Two special rules apply to the tax on certain investment income of a child under age 14.

If the child's interest, dividends, and other investment income total more than $1,500, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. (See Tax for Children Under Age 14 Who Have Investment Income of More Than $1,500, later.)
The child's parent may be able to choose to include the child's interest and dividend income (including capital gain distributions) on the parent's return rather than file a return for the child. (See Parent's Election To Report Child's Interest and Dividends, later.)

For these rules, the term “child” includes a legally adopted child and a stepchild. These rules apply whether or not the child is a dependent.

If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the investment income of a child under 14. For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends. The tax rate and other return information from that parent's return are used to compute the child's tax as explained later under Tax for Children Under Age 14 Who Have Investment Income of More Than $1,500.

Parents are married.

If the child's parents file separate returns, use the return of the parent with the greater taxable income.

Parents not living together.

If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income.

For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in Publication 501.

Parents are divorced.

If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent.

Custodial parent remarried.

If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Do not use the return of the noncustodial parent.

If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies.

Parents never married.

If a child's parents did not marry each other, but lived together all year, use the return of the parent with the greater taxable income. If the parents did not live together all year, the rules explained earlier under Parents are divorced apply.

Widowed parent remarried.

If a widow or widower remarries, the new spouse is treated as the child's other parent. The rules explained earlier under Custodial parent remarried apply.

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 2002 only if all the following conditions are met.

Your child was under age 14 at the end of 2002. A child born on January 1, 1989, is considered to be age 14 at the end of 2002.
Your child is required to file a return for 2002 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 $7,500.
No estimated tax payments were made for 2002 and no 2001 overpayment was applied to 2002 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.)

How to make the election.

Make the election by attaching Form 8814 to your Form 1040 or Form 1040NR. (If you make this election, you cannot file Form 1040A or Form 1040EZ.) 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.

The federal income tax on your child's income may be more if you make the Form 8814 election.

Rate 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 that 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).

Deductible investment interest.

If you use Form 8814, your child's investment income is considered your investment income. To figure the limit on your deductible investment interest, add the child's investment income to yours. However, if your child received capital gain distributions or Alaska Permanent Fund dividends, see chapter 3 of Publication 550, Investment Income and Expenses, for information about how to figure the limit.

Alternative minimum tax.

If your child received tax-exempt interest from a private activity bond, you must determine if that interest is a tax preference item for alternative minimum tax (AMT) purposes. If it is, you must include it with your own tax preference items when figuring your AMT. For more information, get the instructions for Form 6251, Alternative Minimum Tax—Individuals.

Reduced deductions or credits.

If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return, including the following.

Deduction for contributions to a traditional individual retirement arrangement (IRA).
Deduction for student loan interest.
Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses.
Total itemized deductions.
Personal exemptions.
Credit for child and dependent care expenses.
Child tax credit.
Education tax credits.
Earned income credit.

Penalty for underpayment of estimated tax.

If you make this election for 2002 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 2003, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. Get Publication 505 for more information.

Use Part I of Form 8814 to figure your child's interest and dividend income to report on your return. Only the amount over $1,500 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. In the space next to line 21, write “Form 8814.” 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.

Enter on line 3 of Form 8814 any capital gain distributions your child received. The amount of these distributions that is added to your income must be reported on line 13 of Schedule D (Form 1040) or, if you are not required to file Schedule D, on line 13 of Form 1040. You do not include it on line 6 of Form 8814 or on line 21 of Form 1040.

Use the worksheet at the top of the next column to figure the amount to report as capital gain distributions on Schedule D, or directly on Form 1040, and the amount to report on Form 8814, line 6. (The worksheet is needed to divide the $1,500 base amount on line 5 of Form 8814 between the child's capital gain distributions and other interest and dividend income.)

Worksheet for Child's Capital Gain Distributions
(Keep for your records)
1.	Enter amount from Form 8814, line 3
2.	Enter amount from Form 8814, line 4
3.	Divide line 1 by line 2. Enter the result as a decimal
4.	Base amount	$1,500
5.	Subtract line 4 from line 2
6.	Multiply line 5 by the decimal on line 3. Enter the result here and on Schedule D, line 13, column (f), or on line 13 of Form 1040
7.	Subtract line 6 from line 5. Enter the result here and on Form 8814, line 6

On the dotted line next to line 6, Form 8814, write “CGD” and the amount from line 6 of this worksheet. On the dotted line next to line 13, Schedule D, or line 13, Form 1040, write “Form 8814” and the amount from line 6 of this worksheet.

28% rate gain.

If any of the child's capital gain distributions are reported on Form 1099–DIV as 28% rate gain, you must determine how much to also include on Schedule D, line 13, column (g). Multiply the child's capital gain distribution included on line 13, column (f), by a fraction. The numerator is the part of the child's total capital gain distribution that is 28% rate gain. The denominator is the child's total capital gain distribution.

Qualified 5-year gain.

If any of the child's capital gain distributions are reported on Form 1099–DIV as qualified 5-year gain, you must determine how much to also include on line 5 of the Qualified 5-Year Gain Worksheet in the instructions for line 29 of Schedule D. Multiply the child's capital gain distribution included on line 13, column (f), by a fraction. The numerator is the part of the child's total capital gain distribution that is qualified 5-year gain. The denominator is the child's total capital gain distribution.

Unrecaptured section 1250 gain.

If any of the child's capital gain distributions are reported on Form 1099–DIV as unrecaptured section 1250 gain, you must determine how much to include on line 11 of the Unrecaptured Section 1250 Gain Worksheet in the instructions for line 19 of Schedule D. Multiply the child's capital gain distribution included on line 13, column (f), by a fraction. The numerator is the part of the child's total capital gain distribution that is unrecaptured section 1250 gain. The denominator is the child's total capital gain distribution.

Figure 1. Can You Include Your Child's Income On Your Tax Return?

Section 1202 gain.

If any of the child's capital gain distributions are reported as section 1202 gain (gain on qualified small business stock) on Form 1099–DIV, part or all of that gain may be eligible for the section 1202 exclusion. (For information about the exclusion, see chapter 4 of Publication 550.) To figure that part, multiply the child's capital gain distribution included on line 13, column (f), by a fraction. The numerator is the part of the child's total capital gain distribution that is section 1202 gain. The denominator is the child's total capital gain distribution. Your section 1202 exclusion is generally 50% of the result, but may be subject to a limit. See the instructions for Schedule D for information on how to report the exclusion amount.

Example.

Fred is 6 years old. In 2002, he received dividend income of $1,600, which included $1,280 of ordinary dividends and a $320 capital gain distribution from a mutual fund. (None of the distributions were reported on Form 1099–DIV as 28% gain, qualified 5-year gain, unrecaptured section 1250 gain, or section 1202 gain.) He has no other income and is not subject to backup withholding. No estimated tax payments were made under his name and social security number.

Fred's parents elect to include Fred's income on their tax return instead of filing a return for him. They enter $1,280 on line 2 and $320 on line 3, Form 8814.

$100 of Fred's income must be included as income on his parents' tax return ($1,600 gross income minus $1,500). They figure the amount to report on line 13 of their Schedule D and the amount to report on line 6, Form 8814, as follows.

Worksheet for Child's Capital Gain Distributions
(Keep for your records)
1.	Enter amount from Form 8814, line 3	$ 320
2.	Enter amount from Form 8814, line 4	1,600
3.	Divide line 1 by line 2. Enter the result as a decimal	.20
4.	Base amount	$1,500
5.	Subtract line 4 from line 2	100
6.	Multiply line 5 by the decimal on line 3. Enter the result here and on Schedule D, line 13, column (f), or on line 13 of Form 1040	20
7.	Subtract line 6 from line 5. Enter the result here and on Form 8814, line 6	$ 80

On Form 8814, Fred's parents enter $80 on line 6 and write “CGD–$20” on the dotted line next to line 6. They include the $80 on line 21 of their Form 1040 and write “Form 8814–$80” on the dotted line next to the total.

On Schedule D, they include $20 on line 13, column (f), and write “Form 8814–$20” on the dotted line next to this line.

Use Part II of Form 8814 to figure the tax on the $1,500 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.

Include the amount from line 9 of all your Forms 8814 in the total on line 42, Form 1040, or line 40, Form 1040NR. Check box a on Form 1040, line 42, or Form 1040NR, line 40.

David and Linda Parks are married and will file separate tax returns for 2002. 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 41) without regard to 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. (See Which Parent's Return To Use, earlier.)

On Form 8814 (illustrated on the next page), 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 $1,500 base amount shown on line 5 and enters the result, $2,000, on line 6. This is the part of Philip's income that Linda must add to her income.

Please click the link to view the image.

Figure 2. Do You Have To Use Form 8615 To Figure Your Child's Tax?

Linda includes the $2,000 in the total on line 21 of her Form 1040 (not illustrated) and in the space next to that line writes “Form 8814–$2,000.” Adding that amount to her income increases each of the amounts on lines 22, 35, 36, 39, and 41 of her Form 1040 by $2,000. Linda is not claiming any deductions or credits that are affected by the increase to her income. Therefore, her revised taxable income on line 41 is $61,300 ($59,300 + $2,000).

On Form 8814, Linda subtracts the $750 shown on line 7 from the $3,500 on line 4 and enters the result, $2,750, on line 8. Because that amount is not less than $750, she enters $75 on line 9. This is the tax on the first $1,500 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 $61,300 revised taxable income is $13,603. She adds $75, and enters the $13,678 total on line 42 of Form 1040, and checks box a.

Part of a child's 2002 investment income may be subject to tax at the parent's tax rate if:

If neither parent was alive on December 31, 2002, do not use Form 8615. Instead, figure the child's tax in the normal manner.

If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Attach the completed form to the child's Form 1040, Form 1040A, or Form 1040NR.

The following discussions explain the parental information needed for Form 8615 and the steps to follow in figuring the child's tax.

On lines A and B of Form 8615, enter the parent's name and social security number. (If the parents filed a joint return, enter the name and social security number listed first on the joint return.) On line C, check the box for the parent's filing status.

See Which Parent's Return To Use, earlier, for a discussion of 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.

Example.

Kimberly must use her mother's tax and taxable income to complete her Form 8615 for calendar year 2002 (January 1 – December 31). Kimberly's mother files her tax return on a fiscal year basis (July 1 – June 30). Kimberly must use the information on her mother's return for the tax year ending June 30, 2002, to complete her 2002 Form 8615.

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.

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Filled-in Form 8814 for Linda Parks Form: 8814

Extension of time to file.

Instead of using estimates, you can get an automatic 4-month extension of time to file if, by April 15, 2003, you file Form 4868, Application for Automatic Extension of Time To File U.S. Individual Income Tax Return. You can file a paper Form 4868 or you can file it electronically. See the instructions for Form 4868 for details.

If you have an extension, you must file the child's return by August 15, 2003, unless you ask for and are granted an additional extension.

An extension of time to file is not an extension of time to pay. You must make an accurate estimate of the tax for 2002. If you do not pay the full amount due by the regular due date, the child will owe interest and may also be charged penalties. See Form 4868 and its instructions.

Parent's return information not available.

If a child cannot get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the Internal Revenue Service (IRS).

How to request.

After the end of the tax year, send a signed, written request for the information to the Internal Revenue Service Center where the parent's return will be filed. (The IRS cannot process a request received before the end of the tax year.)

You should also consider getting an extension of time to file the child's return, because there may be a delay in getting the requested information.

The request must contain all of the following.

A statement that you are making the request to comply with section 1(g) of the Internal Revenue Code and that you have tried to get the information from the parent.
Proof the child is under 14 years of age (for example, a copy of the child's birth certificate).
Evidence the child has more than $1,500 of unearned income (for example, a copy of the child's prior year tax return or copies of Forms 1099 for the current year).
The name, address, social security number (if known), and filing status (if known) of the parent whose information is to be shown on Form 8615.

A child's legal representative making the request should include a copy of his or her Power of Attorney, such as Form 2848, or proof of legal guardianship.

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. For an example, see the Illustrated Part I of Form 8615 on the next page.

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, use the following worksheet if the child has excluded any foreign earned income or deducted a loss from self-employment or a net operating loss from another year.

Alternate Worksheet
for Line 1 of Form 8615
A.	Enter the amount from the child's Form 1040, line 22, or Form 1040NR, line 23
B.	Enter the total of any net loss from self-employment, any net operating loss deduction, any foreign earned income exclusion, and any foreign housing exclusion from the child's Form 1040 or Form 1040NR. Enter this total as a positive number (greater than zero)
C.	Add line A and line B and enter the total.
D.	Enter the child's earned income plus any amount from line 32 of the child's Form 1040 or line 31 of the child's Form 1040NR.

	Generally, the child's earned income is the total of the amounts reported on Form 1040, lines 7, 12, and 18 (if line 12 or 18 is a loss, use zero) or Form 1040NR, lines 8, 13, and 19 (if line 13 or 19 is a loss, use zero)
E.	Subtract line D from line C. Enter the result here and on Form 8615, line 1

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Illustrated Part I 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 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.

Capital loss.

A child's capital losses are taken into account in figuring the child's investment income. Capital losses are first applied against capital gains. If the capital losses are more than the capital gains, the difference (up to $3,000) is subtracted from the child's interest, dividends, and other investment income. Any difference over $3,000 is carried to the next year.

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
Capital gains—$300
Capital losses—($200)

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 capital gains reduced by capital losses ($300 - $200 = $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.

Adjustment to income.

In figuring the amount to enter on line 1, the child's investment income is reduced by any penalty on the early withdrawal of savings.

If the child does not itemize deductions on Schedule A (Form 1040 or Form 1040NR), enter $1,500 on line 2.

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 itemized deductions on Schedule A (Form 1040). Only the amount greater than 2% of the child's adjusted gross income can be deducted. See Publication 529, Miscellaneous Deductions, 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, age 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.

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.

Enter on line 4 the child's taxable income from Form 1040, line 41; Form 1040A, line 27; or Form 1040NR, line 39.

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.

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Illustrated Part II of Form 8615

The next step in completing Form 8615 is to figure a tentative tax on the child's net investment income at the parent's tax rate. The tentative tax at the parent's tax rate 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. For an example, see Illustrated Part II of Form 8615 on the next page.

Enter on line 6 the amount from the parent's Form 1040, line 41; Form 1040A, line 27; Form 1040EZ, line 6; TeleFile Tax Record, line K; Form 1040NR, line 39; or Form 1040NR–EZ, line 14. If the parent's taxable income is zero or less, enter zero on line 6.

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, 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. Estimates and extensions are discussed earlier under Providing Parental Information (Form 8615, Lines A–C).

Enter on this line the total of lines 5, 6, and 7. You must determine the amount of net capital gain included on this line before completing line 9 of Form 8615.

Net capital gain is the smaller of the gain, if any, on line 16 of Schedule D or the gain, if any, on line 17 of Schedule D. If Schedule D is not required, it is the amount on line 13 of Form 1040 or line 10 of Form 1040A.

Net capital gain on line 8.

If neither the child nor the parent nor any other child has net capital gain, the net capital gain on line 8 is zero.

If the child, parent, or any other child has net capital gain, figure the amount of net capital gain included on line 8 by adding together the net capital gain amounts included on lines 5, 6, and 7 of Form 8615. Use the following discussions to find these amounts.

Net capital gain on line 5.

If the child has a net capital gain, use the appropriate worksheet below to find the amount of net capital gain included on line 5. These worksheets are needed to adjust the child's net capital gain by the appropriate allocated amount of the child's deductions.

Use the following worksheet only if line 2 of the child's Form 8615 is $1,500 and lines 3 and 5 are the same amount.

Use the following worksheet only if line 2 of the child's Form 8615 is more than $1,500 and lines 3 and 5 are the same amount.

Use the following worksheet only if line 5 of the child's Form 8615 is less than line 3.

Line 5 Worksheet #3
A.	Enter the child's net capital gain
B.	If the child itemized deductions, enter the child's itemized deductions directly connected with the production of the child's net capital gain
C.	Subtract line B from line A
D.	If the child can claim his or her own exemption, enter $3,000*. Otherwise, enter zero
E.	If the child itemized deductions, enter the child's itemized deductions not directly connected with the production of the child's net capital gain. Otherwise, enter the child's standard deduction
F.	Add lines D and E
G.	Enter the child's adjusted gross income (line 36 of Form 1040, line 22 of Form 1040A, or line 35 of Form 1040NR)
H.	Divide line A by line G (but do not enter more than 1)
I.	Multiply line F by line H
J.	Net capital gain on line 5. Subtract line I from line C. Enter the result here (but do not enter less than zero or more than the amount on line 5 of Form 8615)
* If you enter more than $137,300 on line G, see Deduction for Exemptions Worksheet—Line 40 in the Form 1040 instructions for the amount to enter on line D.

Net capital gain on line 6.

If the parent has a net capital gain, its full amount is the net capital gain included on line 6.

Net capital gain on line 7.

The net capital gain included on line 7 is the total of the amounts of net capital gain included on line 5 of the other children's Forms 8615. Find the amount for each other child as explained earlier under Net capital gain on line 5. (Do not attach the other children's Forms 8615 to the child's return.)

Figure the tax on the amount on line 8 using the Tax Table, the Tax Rate Schedules, the Capital Gain Tax Worksheet (in the Form 1040, 1040A, or 1040NR instructions), the Schedule D Tax Worksheet (in the Schedule D instructions) or Schedule D or J (Form 1040), as follows.

If line 8 does not include any net capital gain, use the Tax Table or Tax Rate Schedules to figure this tax. But if Schedule J, Farm Income Averaging, is used to figure the tax on the parent's return, use it to figure this tax.
If line 8 does include any net capital gain, use the Capital Gain Tax Worksheet to figure this tax unless the child, parent, or any other child has unrecaptured section 1250 gain, 28% rate gain, qualified 5-year gain, or an amount on Form 4952, line 4e. In that case, use Schedule D to figure this tax, or if there is unrecaptured section 1250 gain or 28% rate gain, use the Schedule D Tax Worksheet. But if Schedule J is used to figure the tax on the parent's return, use it to figure this tax.

Using the Capital Gain Tax Worksheet for line 9 tax.

If you use the Capital Gain Tax Worksheet to figure the line 9 tax on Form 8615, complete that worksheet as follows.

On line 1, enter the amount from line 8 of Form 8615.
On line 2, enter the amount of the net capital gain on line 8 of Form 8615. (See the earlier discussion for line 8.)
Complete lines 3 through 15 following the worksheet instructions. (Use the parent's filing status to complete lines 4, 5, and 14.)

Enter the amount from line 15 of the Capital Gain Tax Worksheet on line 9 of Form 8615 and check the box on that line. Do not attach this worksheet to the child's return.

Using Schedule D for line 9 tax.

Use Schedule D to figure the line 9 tax on Form 8615 if the child, parent, or any other child has qualified 5-year gain or an amount on Form 4952, line 4e, and none of them has unrecaptured section 1250 gain or 28% rate gain.

If you must use Schedule D, first complete any Schedule D required for the child, parent, or any other child. Then figure the tax using Part IV of another Schedule D as a worksheet. (Do not attach this worksheet Schedule D to the child's return.)

Complete this worksheet Schedule D as follows.

On line 19, enter zero.
On line 20, enter the amount from line 8 of Form 8615.
On line 21, enter the net capital gain included on line 8 of Form 8615. (See the earlier discussion for line 8.)
On line 22, enter the total of the amounts on line 22 of each completed Schedule D.
Complete lines 23 through 40, following the Schedule D instructions. (Use the parent's filing status to complete lines 25, 26, and 39.) If you need to complete line 29, enter zero if neither the child, nor the parent, nor any other child has qualified 5-year gain. Otherwise, enter the amount of qualified 5-year gain included in the net capital gain on line 21 of this worksheet Schedule D. Figure this amount as explained next under Figuring qualified 5-year gain (line 29).

Enter the amount from line 40 of this worksheet Schedule D on line 9 of Form 8615 and check the box on that line.

Figuring qualified 5-year gain (line 29).

If the child, parent, or any other child has qualified 5-year gain, figure the amount of qualified 5-year gain included in the net capital gain on line 21 of the worksheet Schedule D using the following worksheet.

Worksheet for Line 29 of Schedule D (Line 9 Tax)
1.	Enter the amount, if any, from line 8 of the child's Qualified 5-Year Gain Worksheet in the Schedule D instructions
	If line 1 is zero or blank, skip lines 2 through 4, enter zero on line 5, and go to line 6.
2.	Enter the amount from the last line of the child's completed Line 5 Worksheet. (See the earlier discussion for line 8 of Form 8615.)
3.	Enter the amount from line A of the child's completed Line 5 Worksheet
4.	Divide line 2 by line 3. Enter the result as a decimal
5.	Multiply line 1 by line 4
6.	If no other child has qualified 5-year gain, enter zero. Otherwise, repeat lines 1 through 5 above for each other child who has qualified 5-year gain and enter the total of the line 5 amounts for those other children
7.	Enter the amount, if any, from line 8 of the parent's Qualified 5-Year Gain Worksheet in the Schedule D instructions
8.	Add lines 5, 6, and 7. Also enter this amount on line 29 of the worksheet Schedule D

Using the Schedule D Tax Worksheet for line 9 tax.

Use the Schedule D Tax Worksheet in the Schedule D instructions to figure the line 9 tax on Form 8615 if the child, parent, or any other child has unrecaptured section 1250 gain or 28% rate gain. If you must use the Schedule D Tax Worksheet, first complete any Schedule D and any actual Schedule D Tax Worksheet required for the child, parent, or any other child. Then figure the line 9 tax using another Schedule D Tax Worksheet. (Do not attach this Schedule D Tax Worksheet to the child's return.)

Complete this Schedule D Tax Worksheet as follows.

On line 1, enter the amount from line 8 of Form 8615.
On line 2, enter the net capital gain included on line 8 of Form 8615. (See the earlier discussion for line 8.)
On line 3, enter the total of the amounts, if any, on line 22 of each actual Schedule D.
On line 4, follow the worksheet instructions.
Leave line 5 blank.
On line 6, enter zero if neither the child, parent, nor any other child has 28% rate gain (line 15 of Schedule D). Otherwise, enter the amount of 28% rate gain included in the net capital gain on line 2. Figure this amount as explained later under Figuring 28% rate gain (line 6).
On line 7, enter zero if neither the child, parent, nor any other child has unrecaptured section 1250 gain (line 19 of Schedule D). Otherwise, enter the amount of unrecaptured section 1250 gain included in the net capital gain on line 2. Figure this amount as explained later under Figuring unrecaptured section 1250 gain (line 7).
Complete lines 8 through 37, following the worksheet instructions. (Use the parent's filing status to complete lines 11, 15, and 36.) If you need to complete line 17, enter zero if neither the child, parent, nor any other child has qualified 5-year gain (line 8 of the Qualified 5-Year Gain Worksheet in the Schedule D instructions). Otherwise, enter the amount of qualified 5-year gain included in the net capital gain on line 2. Figure this amount as explained later under Figuring qualified 5-year gain (line 17).

Enter the amount from line 37 of this Schedule D Tax Worksheet on line 9 of Form 8615 and check the box on that line.

Figuring 28% rate gain (line 6).

If the child, parent, or any other child has 28% rate gain, figure the amount of 28% rate gain included in the net capital gain on line 2 using the following worksheet.

Worksheet for Line 6 of the Schedule D Tax Worksheet (Line 9 Tax)
1.	If the child does not have 28% rate gain, skip this line and lines 2 through 5, enter zero on line 6, and go to line 7. Otherwise, if an actual Schedule D Tax Worksheet was required for the child, skip this line, enter the amount from line 6 of that worksheet on line 2 below, and go to line 3. If that worksheet was not required, combine lines 7 and 15 of the child's Schedule D. Enter the result. If zero or less, enter zero
2.	Enter the smaller of line 1 above or line 15 of the child's Schedule D, but not less than zero
	If line 2 is zero, skip lines 3 through 5, enter zero on line 6, and go to line 7.
3.	Enter the amount from the last line of the child's completed Line 5 Worksheet. (See the earlier discussion for line 8 of Form 8615.)
4.	Enter the amount from line A of the child's completed Line 5 Worksheet
5.	Divide line 3 by line 4. Enter the result as a decimal
6.	Multiply line 2 by line 5
7.	If no other child has 28% rate gain, enter zero. Otherwise, repeat lines 1 through 6 above for each other child who has 28% rate gain and enter the total of the line 6 amounts for those other children
8.	If the parent does not have 28% rate gain, skip this line, enter zero on line 9, and go to line 10. Otherwise, if an actual Schedule D Tax Worksheet was required for the parent, skip this line, enter the amount from line 6 of that worksheet on line 9 below, and go to line 10. If that worksheet was not required, combine lines 7 and 15 of the parent's Schedule D. Enter the result. If zero or less, enter zero
9.	Enter the smaller of line 8 above or line 15 of the parent's Schedule D, but not less than zero
10.	Add lines 6, 7, and 9. Also enter this amount on line 6 of the Schedule D Tax Worksheet

Figuring unrecaptured section 1250 gain (line 7).

If the child, parent, or any other child has unrecaptured section 1250 gain, figure the amount of unrecaptured section 1250 gain included in the net capital gain on line 2 using the following worksheet.

Worksheet for Line 7 of the Schedule D Tax Worksheet (Line 9 Tax)
1.	Enter the amount, if any, from line 19 of the child's Schedule D
	If line 1 is zero or blank, skip lines 2 through 4, enter zero on line 5, and go to line 6.
2.	Enter the amount, if any, from the last line of the child's completed Line 5 Worksheet. (See the earlier discussion for line 8 of Form 8615.)
3.	Enter the amount from line A of the child's completed Line 5 Worksheet
4.	Divide line 2 by line 3. Enter the result as a decimal
5.	Multiply line 1 by line 4
6.	If no other child has unrecaptured section 1250 gain, enter zero. Otherwise, repeat lines 1 through 5 for each other child who has unrecaptured section 1250 gain and enter the total of the line 5 amounts for those children
7.	If the parent does not have unrecaptured section 1250 gain, enter zero. Otherwise, enter the amount from line 19 of the parent's Schedule D
8.	Add lines 5, 6, and 7. Also enter this amount on line 7 of the Schedule D Tax Worksheet

Figuring qualified 5-year gain (line 17).

If the child, parent, or any other child has qualified 5-year gain, figure the amount of qualified 5-year gain included in the net capital gain on line 2 using the following worksheet.

Worksheet for Line 17 of the Schedule D Tax Worksheet (Line 9 Tax)
1.	Enter the amount, if any, from line 8 of the child's Qualified 5-Year Gain Worksheet in the Schedule D instructions
	If line 1 is zero or blank, skip lines 2 through 4, enter zero on line 5, and go to line 6.
2.	Enter the amount from the last line of the child's completed Line 5 Worksheet. (See the earlier discussion for line 8 of Form 8615.)
3.	Enter the amount from line A of the child's completed Line 5 Worksheet
4.	Divide line 2 by line 3. Enter the result as a decimal
5.	Multiply line 1 by line 4
6.	If no other child has qualified 5-year gain, enter zero. Otherwise, repeat lines 1 through 5 above for each child who has qualified 5-year gain and enter the total of the line 5 amounts for those other children
7.	If the parent has no qualified 5-year gain, enter zero. Otherwise, enter the amount from line 8 of the parent's Qualified 5-Year Gain Worksheet in the Schedule D instructions
8.	Add lines 5, 6 and 7. Also enter this amount on line 17 of the Schedule D Tax Worksheet

Using Schedule J for line 9 tax.

Use Schedule J, Farm Income Averaging, to figure the line 9 tax on Form 8615 if Schedule J is used to figure the tax on the parent's return. First complete the actual Schedule J for the parent, then use another Schedule J as a worksheet to figure the tax to enter on line 9 of Form 8615. (Do not attach this worksheet to the child's return.)

Complete this worksheet Schedule J as follows.

On line 1, enter the amount from line 8 of Form 8615.
On line 2, enter the amount from the parent's Schedule J, line 2.
Complete line 3 following the Schedule J instructions.
Complete line 4. If line 8 of Form 8615 includes any net capital gain, use the Capital Gain Tax Worksheet to figure the tax amount on this line unless the child, parent, or any other child has unrecaptured section 1250 gain, 28% rate gain, qualified 5-year gain, or an amount on Form 4952, line 4e. In that case, use Schedule D to figure this tax or, if there is unrecaptured section 1250 gain or 28% rate gain, use the Schedule D Tax Worksheet. Follow the earlier instructions under Using the Capital Gain Tax Worksheet for line 9 tax, Using Schedule D for line 9 tax, or Using the Schedule D Tax Worksheet for line 9 tax, except use the amount on line 3 of this worksheet (instead of the amount on line 8 of Form 8615) in:
1. Item (1) of Using the Capital Gain Tax Worksheet for line 9 tax or Using the Schedule D Tax Worksheet for line 9 tax, or
2. Item (2) of Using Schedule D for line 9 tax.
On lines 5 through 16, enter the amounts from the parent's Schedule J, lines 5 through 16.
Complete line 17 following the Schedule J instructions.
On lines 18 through 21, enter the amounts from the parent's Schedule J, lines 18 through 21.
Complete line 22 following the Schedule J instructions.

Enter the amount from line 22 of this worksheet Schedule J on line 9 of Form 8615 and check the box on that line.

Enter on line 10 the amount from the parent's Form 1040, line 42; Form 1040A, line 28 (minus any alternative minimum tax); Form 1040EZ, line 10; TeleFile Tax Record, line K; Form 1040NR, line 40; or Form 1040NR–EZ, line 15. Do not include the tax, if any, from Form 4972 or Form 8814.

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. Also skip the discussion for lines 12a and 12b that follows.

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 the amounts on lines 5 and 7 ($800 + $1,600). The decimal on line 12b is .333, figured as follows and rounded to three places.

formula

If an amount is entered on line 7, multiply line 11 by the decimal on line 12b and enter the result on line 13. This is the child's share of the tentative tax.

The final step in figuring a child's tax using Form 8615 is to determine the larger of:

If lines 4 and 5 of Form 8615 are the same, the child's taxable income does not exceed the child's net investment income. Enter zero on lines 14 and 15, and go to line 16. Also skip the rest of this discussion and the discussion for line 15 that follows.

If lines 4 and 5 are not the same, subtract line 5 from line 4 and enter the result on line 14. Then, before completing line 15, you must determine the amount of net capital gain, if any, included on line 14.

Net capital gain on line 14.

If the child does not have any net capital gain, the net capital gain included on line 14 is zero. For an explanation of net capital gain, see the earlier discussion for line 8 of Form 8615.

If the child has net capital gain, the amount included on line 14 is the amount from line A of the child's completed Line 5 Worksheet minus the amount from the last line of that worksheet. (See the earlier discussion for line 8 of Form 8615.)

Figure the tax on the amount on line 14 using the Tax Table, the Tax Rate Schedules, the Capital Gain Tax Worksheet, the Schedule D Tax Worksheet, or Schedule D or J (Form 1040), as follows.

Using the Capital Gain Tax Worksheet for line 15 tax.

If you use the Capital Gain Tax Worksheet to figure the line 15 tax on Form 8615, complete that worksheet as follows.

On line 1, enter the amount from line 14 of Form 8615.
On line 2, enter the amount of the net capital gain included on line 14 of Form 8615. (See the earlier discussion for line 14.)
Complete lines 3 through 15 following the worksheet instructions. Use the child's filing status to complete lines 4, 5, and 14.

Enter the amount from line 15 of this Capital Gain Tax Worksheet on line 15 of Form 8615 and check the box on that line. Do not attach this worksheet to the child's return.

Using Schedule D for line 15 tax.

Use Part IV of Schedule D to figure the line 15 tax on Form 8615 if the child has qualified 5-year gain or an amount on Form 4952, line 4e, and no unrecaptured section 1250 gain or 28% rate gain. (If the child has unrecaptured section 1250 gain or 28% rate gain, see Using the Schedule D Tax Worksheet for line 15 tax, next.) If you must use Schedule D, first complete any actual Schedule D required for the child. Then figure the line 15 tax using Part IV of another Schedule D as a worksheet. (Do not attach this worksheet Schedule D to the child's return.)

Complete this worksheet Schedule D as follows.

On line 19, enter zero.
On line 20, enter the amount from line 14 of Form 8615.
On line 21, enter the net capital gain included on line 14 of Form 8615. (See the earlier discussion for line 14.)
On line 22, enter the amount from line 22 of the child's actual Schedule D.
Complete lines 23 through 40, following the Schedule D instructions. Use the child's filing status to complete lines 25, 26, and 39. If you need to complete line 29, enter zero if the child has no qualified 5-year gain (line 8 of the Qualified 5-year Gain Worksheet in the Schedule D instructions). Otherwise, in the earlier discussion for line 9 of Form 8615, see the Worksheet for Line 29 of Schedule D (Line 9 Tax) or the Worksheet for Line 17 of the Schedule D Tax Worksheet (Line 9 Tax), whichever was used. Subtract line 5 of that worksheet from line 1 of that worksheet and enter the result on line 29 of this worksheet Schedule D.

Enter the amount from line 40 of this worksheet Schedule D on line 15 of Form 8615.

Using the Schedule D Tax Worksheet for line 15 tax.

Use the Schedule D Tax Worksheet in the Schedule D instructions to figure the line 15 tax on Form 8615 if the child has unrecaptured section 1250 gain or 28% rate gain. If you must use the Schedule D Tax Worksheet, first complete any Schedule D and any actual Schedule D Tax Worksheet required for the child. Then figure the line 15 tax using another Schedule D Tax Worksheet. (Do not attach this Schedule D Tax Worksheet to the child's return.)

Complete this Schedule D Tax Worksheet as follows.

On line 1, enter the amount from line 14 of Form 8615.
Leave lines 2 and 3 blank.
On line 4, enter the net capital gain included on line 14 of Form 8615. (See the earlier discussion for line 14.)
Leave line 5 blank.
On line 6, enter zero if the child has no 28% rate gain (line 15 of Schedule D). Otherwise, see the Worksheet for Line 6 of the Schedule D Tax Worksheet (Line 9 Tax) under Using the Schedule D Tax Worksheet for line 9 tax, earlier. Subtract line 6 of that worksheet from line 2 of that worksheet, and enter the result on line 6 of this worksheet.
On line 7, enter zero if the child has no unrecaptured section 1250 gain (line 19 of Schedule D). Otherwise, in the earlier discussion for line 9 of Form 8615, see the Worksheet for Line 7 of the Schedule D Tax Worksheet (Line 9 Tax). Subtract line 5 of that worksheet from line 1 of that worksheet and enter the result on line 7 of this worksheet.
Complete lines 8 through 37, following the worksheet instructions. Use the child's filing status to complete lines 11, 15, and 36. If you need to complete line 17, enter zero if the child has no qualified 5-year gain (line 8 of the Qualified 5-Year Gain Worksheet in the Schedule D instructions). Otherwise, in the earlier discussion for line 9 of Form 8615, see the Worksheet for Line 17 of the Schedule D Tax Worksheet (Line 9 Tax). Subtract line 5 of that worksheet from line 1 of that worksheet and enter the result on line 17 of this worksheet.

Enter the amount from line 37 of this Schedule D Tax Worksheet on line 15 of Form 8615 and check the box on that line.

Using Schedule J for line 15 tax.

If Schedule J applies, use it as a worksheet to figure the tax to enter on line 15 of Form 8615. On line 1 of this worksheet, enter the amount from line 14 of Form 8615. Complete lines 2 through 22 following the Schedule J instructions. Use the child's filing status to complete lines 4, 8, 12, and 16.

Enter the amount from line 22 of this worksheet Schedule J on line 15 of Form 8615 and check the box on that line. Do not attach this worksheet to the child's return.

Add lines 13 and 15 and enter the total on line 16. This is the child's tax figured at the parent's rate on net investment income and the child's rate on other income.

Figure the tax on line 4 (the child's taxable income). Use the Tax Table, the Tax Rate Schedules, the Capital Gain Tax Worksheet, the Schedule D Tax Worksheet, or the child's actual Schedule D or J, whichever applies. Enter the tax amount on line 17. If it is from the Capital Gain Tax Worksheet, the Schedule D Tax Worksheet, Schedule D, or Schedule J, check the box on that line.

Enter on line 18 the larger of line 16 or line 17. Also enter this amount on the child's Form 1040, line 42; Form 1040A, line 28; or Form 1040NR, line 40. This is the child's 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. These items include accelerated depreciation and certain tax-exempt interest income. The AMT may also apply if the child has passive activity losses or certain distributions from estates or trusts.

For more information on who is liable for AMT and how to figure it, get Form 6251.

Limit on exemption amount.

Ordinarily, single people can subtract a $35,750 exemption amount from their AMT taxable income. However, a child who files Form 8615 has a limited exemption amount. The child's exemption amount for 2002 is limited to the child's earned income plus $5,500. Figure the child's allowable exemption amount on the worksheet in the instructions for line 29 of Form 6251.

This example shows how to fill out Forms 8615 and 1040A for Sara Brown. It also shows how to use the Capital Gain Tax Worksheet in the Form 1040A instructions to figure Sara's tax.

John and Laura Brown have one child, Sara. She is 13 and has $2,100 taxable interest and dividend income, $700 capital gain distributions, and $1,550 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 she 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. He completes her Form 1040A through line 27, then begins completing her Form 8615.

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, $2,800, on line 1. Sara does not itemize deductions, so John enters $1,500 on line 2. He enters $1,300 ($2,800 - $1,500) on line 3.

Sara's taxable income, as shown on line 27 of her Form 1040A, is $2,550. This is her total income ($4,350) minus her standard deduction ($1,800). Her standard deduction is limited to the amount of her earned income plus $250. John enters $2,550 on line 4.

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 ($1,300), line 6 ($48,000), and line 7 (blank) and enters $49,300 on line 8.

Because Sara's capital gain distributions are included on line 5, John uses Line 5 Worksheet #1 (in the discussion for line 8, earlier) to figure out that $325 net capital gain is included on line 5. He completes that worksheet as follows.

Therefore, line 8 of Sara's Form 8615 also includes net capital gain of $325. John uses the Capital Gain Tax Worksheet (in the Form 1040A instructions) and follows the instructions under Using the Capital Gain Tax Worksheet for line 9 tax, earlier, to figure the $7,084 tax to enter on line 9 of Sara's Form 8615. He completes that worksheet as shown on Filled-in Capital Gain Tax Worksheet #1.

He enters the tax from his and Laura's Form 1040 ($6,763) on line 10 of Sara's Form 8615, subtracts that amount from the $7,084 on line 9, and enters the $321 remainder on line 11. Because line 7 is blank, John skips lines 12a and 12b and enters $321 on line 13.

John subtracts line 5 ($1,300) from line 4 ($2,550) and enters the result, $1,250 on line 14. Using the instructions for line 14 earlier, John subtracts the net capital gain included on line 5 ($325) from Sara's net capital gain ($700) to figure the $375 net capital gain included on line 14. He uses another Capital Gain Tax Worksheet and follows the instructions under Using the Capital Gain Tax Worksheet for line 15 tax, earlier, to figure the $126 tax to enter on Form 8615, line 15. He completes that worksheet as shown on Filled-in Capital Gain Tax Worksheet #2.

John adds lines 13 and 15 of Form 8615 and enters the sum, $447, on line 16. Then he uses another Capital Gain Tax Worksheet to figure the $256 tax on Sara's $2,550 taxable income to enter on Form 8615, line 17. He completes that worksheet as shown on Filled-in Capital Gain Tax Worksheet #3.

Finally, John compares lines 16 and 17 and enters the larger amount, $447, on line 18 of Sara's Form 8615. He also enters that amount on line 28 of Sara's Form 1040A.

Publication 929Main Contents

Terms you may need to know (see Glossary):

Terms you may need to know (see Glossary):

Publication 929
Main Contents