J.K. Lasser's Your Income Tax 2013: For Preparing Your 2012 Tax Return

Chapter 24

Computing the “Kiddie Tax” on Your Child’s Investment Income

If the “kiddie tax” applies to your child, your child’s 2012 investment income in excess of $1,900 is taxed at your tax rate. The kiddie tax applies not only to children under age 18, but also to children who are age 18 or full-time students age 19–23 who do not have earned income exceeding half of their support. Only investment income of a child over $1,900 is subject to the kiddie tax, not wages or self-employment earnings.

The kiddie tax is generally figured on Form 8615 as part of the computation of the child’s regular tax liability for the year. The liability from Form 8615 is then entered on the child’s own tax return, and Form 8615 is attached. The Form 8615 computation has no effect on the treatment of items on your own return or on your tax computation. Instead of completing Form 8615, you may elect on Form 8814 to report the child’s investment income on your own return, provided the child received only interest and dividend income. If you elect on Form 8814 to report the child’s investment income on your own return, your adjusted gross income will increase and this could adversely affect your right to claim various deductions (24.4).

If you are married but file separately, the parent with the larger amount of taxable income is responsible for the kiddie tax computation. If parents are divorced, separated, unmarried, or living apart for the last six months of the year, the parent who has custody of ...