Parents only can report their child’s income on their return if the child’s total income is less than $9,500. To qualify, the child can only have earned his income through interest, dividends and capital gains. If any federal backup withholdings were taken out of the child’s income or any estimated tax payments were made, the child’s income for the year cannot be reported on a parent’s return. If the child makes any income and either does not qualify to have his income reported on his parents’ returns or the parents choose not to report the income, the child is required to file a personal return.
Which Return to Use
If the parents are married filing jointly, the choice of return is obvious. If the parents are married filing separately and live together, use the return of the parent that is reporting the most taxable income. If the parents are separated and not living together, and the child is not married, report the income on the return of the parent that has custody of the child. If the child is married and the parents are separated and not living together, report the income on the return of the parent who has the most taxable income. If the parents are divorced and the custodial parent has not remarried, report the income on the custodial parent’s return.
Breaking down the income.
Only the first $1.900 is included in a parent's taxable income. This is the child’s includable income. From there, the income needs to be broken down further for reporting purposes. Qualified dividends and capital gain distributions need to be broken out into separate segments, as they will be reported on different lines on your return.
Report Income on Form 8814
The qualified dividends a child earns are reported on Form 8814, Line 2a. Capital gain distributions are reported on Form 8814, Line 9. The remainder of includable income should be reported on lines 6 and 12 of Form 8814. This amount is to be included on the amount reported on Line 21 of your personal return, or Form 1040. The tax on the first $1,900 of your child's income is calculated in Section II of Form 8814. The tax on this amount is either 10 percent of your child’s gross income minus $950 or $95, whichever is smaller.
Tax Tips and Disclaimer
For complex returns, consult with a tax professional, such as a certified public accountant (CPA) or licensed attorney, as he can best address your individual needs. Keep your tax records for at least seven years to protect against the possibility of future audits. Every effort has been made to ensure the accuracy of this information, but it is not intended to be legal advice.
John Cromwell specializes in financial, legal and small business issues. Cromwell holds a bachelor's and master's degree in accounting, as well as a Juris Doctor. He is currently a co-founder of two businesses.