Form 8615

Child’s own tax rate, also known as the Kiddie Tax, must be filed by any child with more than $2,200 in unearned income for a calendar year. The TCJA changed how the tax on children’s unearned income is calculated. Instead of taxing it at the parent’s top marginal rate, it is now calculated at the modified estate and trust rates. 8615 Form is used to report the tax, also known as the Kiddie Tax, and must be filed by any child who has more than $2,200 in unearned income for a calendar year.

Parents often use this form to report the interest, capital gain, and ordinary dividends their child has earned during the year. This could help parents claim deductions on their return that would otherwise not be available to them if the child had filed a separate tax return. In other cases, the child may elect to include the child’s interest, capital gain, and ordinary dividends on the parent’s return instead of filing Form 8615. This is called a “kiddie tax election” and will be noted on the parents’ return when this election is made.

Who Must File Form 8615?

The amount of unearned income that a child must report on Form 8615 depends on the rules for tax years 2018 and 2019. In general, the first $1,150 of a child’s unearned income is tax-free, and any income above this amount is taxed at the parent’s marginal tax rate. This treatment is often called the “kiddie tax.” However, there are some exceptions to this rule. For example, a child may have to file a return if they receive unemployment compensation or if their parent is required to pay social security taxes on their income. In addition, a parent may be able to elect to include their child’s interest and ordinary dividend income, including capital gain distributions, on their return rather than filing a return for their child.

This election is not available to remarried parents or to separated or unmarried parents for tax-filing purposes. This is because the calculations for these scenarios get more complicated. If a child’s interest, ordinary dividends, and capital gain distributions are less than $10,500, their parent can choose to include them on the parent’s return. This is often a good choice because it means that all the income is taxed at the parent’s tax rates, which can be lower than the child’s rate.

Similarly, if the parent’s tax rates are higher than the child’s, the parent can make an election to use their tax rate instead of the child’s for calculation purposes on Form 8615. This is sometimes a good choice if the child has other sources of income that are not included on their return, such as IRA distributions, scholarship and grant payments, or royalty income.

If a child’s income changes between the time the parent files their return and the child’s return, the child’s tax must be refigured on Form 1040X. This is especially important if the parent’s income increases or decreases and the child’s income increases or decreases.

How to fill Out Form 8615?

• The amount of the child’s unearned income is figured using the child’s gross income, the parent’s income tax rate, and the child’s own tax rate. The child’s unearned income may also be subject to a 3.8% net investment income tax (NIIT).

For more information, see IRS Publication 929. The unearned income that is reported on Form 8615 includes taxable interest, ordinary dividends, capital gains (including capital gain distributions), rents, royalties, taxable social security benefits, pension and annuity income, scholarship and fellowship grants not reported on Form W-2, unemployment compensation, and alimony.

If a parent has more than one child, the amount of the net investment income of each child is divided by the sum of the net investment income of all the children to determine their proportion of the tax liability. This is called the kiddie tax.

Once the kiddie tax has been calculated, use this Qualified Dividends and Capital Gains Worksheet to calculate the amount of the child’s interest and dividend income that must be reported on line 15 of Form 8615. This worksheet can be attached to the child’s return or used in TaxAct Online and Desktop to enter the data.

In some cases, a parent can choose to report the child’s interest, ordinary dividends, and capital gain distributions on the child’s tax return rather than on Form 8615. If this is the case, complete Form 8814, Parents’ Election To Report Child’s Interest and Dividends, instead of Form 8615 with the parents’ tax return. Alternatively, a parent can enter the amount of their child’s unearned income into their tax return. This is generally preferred for married couples, as filing separately can reduce their overall tax burden.

• To fill out the 8615 Form, select Federal Government Forms > Worksheets and select 8615 Report or Reconciliation Report for Part II Tax Computation of Form 8615. From there, select 8615 or 8615R for the correct year and click Edit to complete the Form 8615 screen.

The top section of the Form 8615 screen allows you to enter parents’ information and calculate the Kiddie Tax. If the parent’s tax rate is not selected, an alternative calculation is provided in the Alternate calculation section. If you choose to use the alternate calculation, you must complete the box Use Alternate Calculation and select the appropriate option from the screen. If you do not choose to use the alternate calculation, the default tax brackets and rates will apply.