Pleasanton Weekly

News - March 21, 2014

Tax rules for children with investment income

4 facts from IRS that you should know about your child's income

by Jeb Bing

Most adults must pay income tax on their investment income. That is also true for children who have investments in their name.

In a report, Raphael Tulino -- who handles media relations for the IRS in the Bay Area, as well as in Southern California and Nevada -- said special tax rules apply to certain children with investment income. Those rules may affect the tax rate and the way the child's parent or guardian reports the income.

Here are four facts from the IRS that you should know about your child's investment income:

1. Investment income normally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.

2. Special rules apply if your child's total investment income is more than $2,000. Your tax rate may apply to part of that income instead of your child's tax rate.

3. If your child's total interest and dividend income was less than $10,000 in 2013, you may be able to include the income on your tax return. If you make this choice, the child does not file a return. (See IRS Form 8814, Parents' Election to Report Child's Interest and Dividends.)

4. Children whose investment income was $10,000 or more in 2013 must file their own tax return. (See IRS Form 8615, Tax for Certain Children Who Have Investment Income, along with the child's federal tax return.)

Starting in 2013, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax. NIIT is a 3.8% tax on the lesser of either net investment income or the excess of the child's modified adjusted gross income that is over a threshold amount. (Use IRS Form 8960, Net Investment Income Tax, to figure this tax.)

For more information, Tulino suggests signing onto the IRS website at www.irs.gov.

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