Tax Rules for Children with Investment Income

Children who receive investment income are subject to special tax rules that affect how parents must report a child’s investment income. Some parents can include their child’s investment income on their tax return, while other children may have to file their own tax return. If a child cannot file his or her own tax return for any reason, such as age, the child’s parent or guardian is responsible for filing a return on the child’s behalf.

Here’s what you need to know about tax liability and your child’s investment income.

1. Investment income normally includes interest, dividends, capital gains and other unearned income, such as from a trust.
2. Special rules apply if your child’s total investment income is more than $2,100. The parent’s tax rate may apply to part of that income instead of the child’s tax rate.
3. If your child’s total interest and dividend income is less than $10,500, then you may be able to include the income on your tax return. If you make this choice, the child does not file a return. Instead, you file Form 8814, Parents’ Election to Report Child’s Interest and Dividends, with your tax return.
4. If your child receives investment income of $10,500 or more in 2017, then he or she will be required to file Form 8615, Tax for Certain Children Who Have Unearned Income, with the child’s 2017 federal tax return.

Please call our office, if you have any questions about tax rules for your child’s investment income in 2017.