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Tax on a Child's Investment Income

This is archived information that pertains only to the 2001 Tax Year. If you
are looking for information for the current tax year, go to the Tax Prep Help Area.

This discussion explains two special rules affecting the tax on certain investment income of a child under age 14 who is required to file a tax return. These special rules may apply whether or not the child is claimed as a dependent.

Under the first special rule, you as a parent may be able to avoid having to file a tax return for your child by including the child's income on your tax return. You can choose to do this if all of the following conditions are met:

  • Your child was under age 14 at the end of your tax year,
  • Your child had income only from interest and dividends, including Alaska Permanent Fund dividends and capital gain distributions,
  • The interest and dividend income was less than $7,500,
  • No estimated tax payments were made for 2001, and no 2000 tax overpayment was applied to 2001, under your child's name and social security number, and
  • No federal income tax was withheld from your child's income under backup withholding.

If you do not file a joint return with the child's other parent, order Publication 929 (PDF) to find out which parent's return may include the child's income.

To make this choice, attach Form 8814 (PDF), Parent's Election to Report Child's Interest and Dividends, to your Form 1040 (PDF).

The second special rule may apply if an income tax return is filed for the child. Under this rule, part of the child's investment income may be taxed at the parent's tax rate for 2001 if:

  • The child was under age 14 at the end of the parent's tax year,
  • The child's investment income for 2001 was more than $1,500, and
  • The child is required to file a tax return for 2001.

The child's tax is figured on Form 8615 (PDF), Tax for Children Under Age 14 With Investment Income of More Than $1,500. This form must be attached to the child's tax return.

For more information on this topic, order Publication 929, Tax Rules for Children and Dependents. The publication is necessary for completing the Form 8615 if the child has capital gain distributions.

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