To discourage substantial income splitting of investment income between parents and minor children, the tax law has complicated income reporting for parents and children by—
For a child who can be claimed as a dependent either as a qualifying child or a qualifying relative (21.1), the income filing threshold for 2012 is generally $950. If your dependent child has gross income (earned and investment income) of $950 or less for 2012, he or she is not subject to tax and does not have to file a tax return.
A 2012 return must be filed for a dependent child with investment income exceeding $300 and gross income of more than $950. If a dependent child has salary or other earned income but no investment income, a return does not have to be filed unless such earned income exceeds $5,950 in 2012. If your child’s only income is from interest and dividends, you may be able to make an election to report the income on your own return (24.4).
Although a dependent child may not claim a personal exemption on his or her 2012 tax return, the child is allowed to claim at least a $950 standard deduction. A dependent child with earned income over $950 may claim a standard deduction up to those earnings plus an additional $300, but no more than the basic standard deduction, which is generally $5,950 (13.1).
If your child is not subject to the “kiddie tax” under the rules at 24.2, follow the regular filing rules and use Form 1040EZ, 1040A, or Form 1040 to report the child’s income and deductions. Since the “kiddie tax” computation does not apply, all of the child’s income will be taxed at his or her own tax rate. If your child is unable to sign his or her tax return, you must do so (1.13).
If the kiddie tax computation applies (24.2), Form 8615 must be filed to compute the kiddie tax unless your child’s only income is interest and dividends and you elect to report your child’s investment earnings on your own return (24.4). On Form 8615 you must provide your Social Security number and taxable income. Form 8615 is attached to the child’s tax return (24.3).
A child who has substantial tax-exempt interest, tax preferences, or tax adjustments subject to the alternative minimum tax must compute tentative AMT liability on Form 6251; see Chapter 23.
Interest and dividend income | $480 |
Less: standard deduction (13.5) | 950 |
Tax liability | 0 |
Interest income | $700 |
Qualified dividends | 450 |
$1,150 | |
Less: standard deduction | 950 |
Taxable income | $200 |
13.58.44.229