Topic 553 - Tax on a Child's Investment Income

The following two rules may affect the tax on the investment income of certain children:

  • If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. See the Form 8615 Instructions (PDF), Tax for Certain Children Who Have Unearned Income, or
  • If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to elect to include that income on the parent's return rather than file a return for the child. See Form 8814 (PDF), Parents Election To Report Child's Interest and Dividends.

For either rule to apply, the child must be required to file a return. See Publication 929, Tax Rules for Children and Dependents, for filing requirement information.

Part of a child's unearned income may be taxed at the parent's tax rate if:

  1. The child's unearned income was more than $2,000
  2. The child meets one of the following age requirements:
    • The child was under age 18 at the end of the tax year
    • The child was age 18 at the end of the tax year and the child's earned income did not exceed one-half of the child's own support for the year, or
    • The child was a full-time student who was under age 24 at the end of the tax year and the child's earned income did not exceed one half of the child's own support for the year (excluding scholarships)
  3. At least one of the child's parents was alive at the end of the tax year
  4. The child is required to file a tax return for the tax year, and
  5. The child does not file a joint return for the tax year

The child's tax is figured on Form 8615 (PDF), Tax for Certain Children Who Have Unearned Income. This form must be attached to the child's tax return.

Beginning January 1, 2013, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax (NIIT). NIIT is a 3.8% tax on the lesser of net investment income or the excess of the child's modified adjusted gross income (MAGI) over a threshold amount. Use Form 8960 (PDF), Net Investment Income Tax, to figure this tax. For more information, see Net Investment Income Tax FAQs on our website.

A parent may be able to avoid having to file a tax return for the child by including the child's income on the parent's tax return. A parent can elect to do this if all of the following conditions are met:

  1. At the end of the tax year the child was under age 19 or under age 24, if a full-time student
  2. The child's interest and dividend income was less than $10,000 for the tax year
  3. The child had income only from interest and dividends, which includes Alaska Permanent Fund dividends and capital gain distributions
  4. No estimated tax payments were made for the tax year, and no prior tax year's tax overpayment was applied to the current tax year, under the child's name and social security number
  5. No federal income tax was withheld from the child's income under backup withholding
  6. The child is required to file a return unless the parent makes this election
  7. The child does not file a joint return for the tax year
  8. The parent is the parent qualified to make the election or files a joint return with the child's other parent

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

Refer to Publication 929, Tax Rules for Children and Dependents, for more information in general, including the following issues:

  • Certain January 1 birthdays
  • Parents who do not file a joint return
  • A child with capital gain distributions, and
  • Other effects of the election on the parents' return

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Page Last Reviewed or Updated: February 27, 2014