Special tax rules may apply to some children who receive investment income. And these rules may affect the amount of tax and how to report the income. Here are five key points to keep top of mind if your child has investment income.
- Investment income generally includes interest, dividends and capital gains; plus other unearned income, such as income from a trust.
- Parent’s Tax Rate. If a child’s total investment income is more than $2,000 then your tax rate may apply to part of that income instead of your child’s tax rate. See the instructions for Form 8615, found on IRS.gov, for details.
- Parent’s Return. You may be able to include your child’s investment income on your tax return if it was less than $10,000 for the year. If you do, then your child will not have to file a tax return. Use Form 8814 found on IRS.gov.
- Child’s Return. If a child’s investment income was $10,000 or more in 2014 then the child must file their own return. Be sure to file Form 8615 along with the child’s tax return.
- Net Investment Income Tax. A child may be subject to the NIIT if they have to file Form 8615. Form 8960, found on IRS.gov, offers guidance on how to figure this tax.
