Question

Unearned Income of Minor Children and Certain Students (LO 6.4)

Explain the two different ways that the tax on unearned income of minor children, or "kiddie tax," can be reported.

The kiddie tax may be computed on Form 8615  which is attached to the child's  tax return. Alternatively, the parents may elect to include the income by attaching Form 8814 . To make this election, the child's unearned income must be more than $ and less than $.

Answer 1

The “kiddie tax” may be computed on Form 8615, which shows the income of the parents and provides a calculation of the child’s tax at the parents’ tax rates. This form is attached to the child’s separate tax return. Alternatively, parents may elect to include the child’s income with their own return. To make this election, the child’s unearned income must be more than $1,000 and less than $10,000 and consist only of interest and dividends. In this case, the parents must attach Form 8814 to their tax return showing the child’s income that is taxed in their tax return.

(The basic answer is that either the child or the parent may report the unearned income and pay the tax.)