Complete List of Tax Topics

Tax Rules for Children and Dependents, Publication 929 (2009)

What's New

Filing requirements. The amount of gross income that many dependents with earned income (wages, tips, etc.) can have during the year without having to file a return has increased. See Filing Requirements in Part 1.

Standard deduction. The standard deduction for many dependents with earned income (wages, tips, etc.) has increased. See Standard Deduction in Part 1.

Alternative minimum tax. The limit on the exemption amount for figuring the alternative minimum tax of a child filing Form 8615 has increased to the child's earned income plus $6,700 (previously $6,400). See Alternative minimum tax in Part 2.

Reminders

Social security number (SSN). Dependents who are required to file a tax return must have an SSN. To apply for an SSN, file Form SS-5 with the Social Security Administration. You can go to the website www.socialsecurity.gov for more information.

Individual taxpayer identification number (ITIN). The IRS will issue an ITIN to a nonresident or resident alien who does not have and is not eligible to get an SSN. To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS. It takes 6-10 weeks to get an ITIN. The ITIN is entered wherever an SSN is requested on a tax return. If you are a nonresident alien applying for an ITIN to file a tax return, you generally must attach your original, completed return to Form W-7 to get an ITIN. If you are required to include another person's SSN on your return and that person does not have and cannot get an SSN, enter that person's ITIN.An ITIN is for tax use only. It does not entitle you to social security benefits or change your employment or immigration status under U.S. law.

Introduction

Part 1 of this publication explains the filing requirements and other tax information for individuals who can be claimed as a dependent on another person's tax return.

Part 2 explains how to report and figure the tax on investment income of certain children (whether or not they can be claimed as dependents).

Definitions.

Many of the terms used in this publication, such as “dependent,” “earned income,” and “unearned income,” are defined in the Glossary at the back of this publication.

Useful Items - You may want to see:

Publication

• 501 Exemptions, Standard Deduction, and Filing Information
• 550 Investment Income and Expenses

Form (and Instructions)

• W-4 Employee's Withholding Allowance Certificate
• 8615 Tax for Certain Children Who Have Investment Income of More Than $1,900
• 8814 Parents' Election To Report Child's Interest and Dividends

See How To Get Tax Help near the end of this publication for information about getting these publications and forms.

Part 1. Rules for All Dependents

This part of the publication discusses the filing requirements for dependents, who is responsible for a child's return, how to figure a dependent's standard deduction and exemption (if any), and whether a dependent can claim exemption from federal income tax withholding.

Filing Requirements

Whether a dependent has to file a return generally depends on the amount of the dependent's earned and unearned income and whether the dependent is married, is age 65 or older, or is blind.

The following sections apply to dependents with:

• Earned income only,
• Unearned income only, and
• Both earned and unearned income.

To find out whether a dependent must file, read the section that applies, or use Table 1 above.

Earned Income Only

A dependent must file a return if all his or her income is earned income, and the total is more than the amount listed in the following table.

Unearned Income Only

A dependent must file a return if all his or her income is unearned income, and the total is more than the amount listed in the following table.

Election to report child's unearned income on parent's return.

Earned and Unearned Income

Table 1. 2009 Filing Requirements for Dependents

Other Filing Requirements

Some dependents may have to file a tax return even if their income is less than the amount that would normally require them to file a return.

A dependent must file a tax return if he or she owes any other taxes, such as:

• Social security and Medicare taxes on tips not reported to his or her employer or on wages received from an employer who did not withhold these taxes,
• Uncollected social security and Medicare or railroad retirement taxes on tips reported to his or her employer or on group-term life insurance,
• Alternative minimum tax,
• Additional tax on a health savings account from Form 8889, Part III,
• Recapture taxes, such as the tax from recapture of an education credit, or
• Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. But if the dependent is filing a return only because of this tax, the dependent can file Form 5329 by itself.

A dependent must also file a tax return if he or she:

• Received any advance earned income credit payments from his or her employers in 2009,
• Had wages of $108.28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes, or
• Had net earnings from self-employment of at least $400.

Spouse itemizes.

A dependent must file a return if the dependent's spouse itemizes deductions on a separate return and the dependent has $5 or more of gross income (earned and/or unearned).

Should a Return Be Filed Even If Not Required?

Even if a dependent does not meet any of the filing requirements discussed earlier, he or she should file a tax return if either of the following applies.

• Income tax was withheld from his or her income.
• He or she qualifies for the earned income credit, additional child tax credit, health coverage tax credit, refundable credit for prior year minimum tax, first-time homebuyer credit, making work pay credit, government retiree credit, or refundable American opportunity education credit. See the tax return instructions to find out who qualifies for these credits.

By filing a return, the dependent can get a refund.

Responsibility for Child's Return

Generally, the child is responsible for filing his or her own tax return and for paying any tax, penalties, or interest on that return. If a child cannot file his or her own return for any reason, such as age, the child's parent or guardian is responsible for filing a return on his or her behalf.

Signing the child's return.

If the child cannot sign his or her return, a parent or guardian can sign the child's name in the space provided at the bottom of the tax return. Then, he or she should add: “By (signature), parent (or guardian) for minor child.”

Authority of parent or guardian.

A parent or guardian who signs a return on a child's behalf can deal with the IRS on all matters connected with the return. In general, a parent or guardian who does not sign the child's return can only provide information concerning the child's return and pay the child's tax. That parent or guardian is not entitled to receive information from the IRS or legally bind the child to a tax liability arising from the return.

Third party designee.

A child's parent or guardian who does not sign the child's return may be authorized, as a third party designee, to discuss the processing of the return with the IRS as well as provide information concerning the return. The child or the person signing the return on the child's behalf must check the “Yes” box in the “Third Party Designee” area of the return and name the parent or guardian as the designee. If designated, a parent or guardian can respond to certain IRS notices and receive information about the processing of the return and the status of a refund or payment. This designation does not authorize the parent or guardian to receive any refund check, bind the child to any tax liability, or otherwise represent the child before the IRS. See the return instructions for more information.

Designated as representative.

IRS notice.

If you or the child receives a notice from the IRS concerning the child's return or tax liability, you should immediately inform the IRS that the notice concerns a child. The notice will show who to contact. The IRS will try to resolve the matter with the parent(s) or guardian(s) of the child consistent with their authority.

Child's earnings.

If the child does not pay the tax due on this income, the parent may be liable for the tax.

Child's expenses.

Deductions for payments that are made out of a child's earnings are the child's, even if the payments are made by the parent.

Standard Deduction

The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the larger of:

1. $950, or
2. The individual's earned income plus $300, but not more than the regular standard deduction (generally $5,700).

However, the standard deduction is higher for a dependent who:

• Is 65 or older,
• Is blind,
• Paid state or local real estate taxes,
• Has a net disaster loss from a federally declared disaster, or
• Paid state or local sales or excise tax on the purchase of a new motor vehicle after February 16, 2009.

For more information about the higher standard deduction for real estate taxes, a net disaster loss, or sales or excise tax paid on the purchase of a new motor vehicle, see Publication 501.

Certain dependents cannot claim any standard deduction. See Standard Deduction of Zero, later.

Worksheet 1.

Use Worksheet 1to figure the dependent's standard deduction.

Worksheet 1. Standard Deduction Worksheet for Dependents

Standard Deduction of Zero

The standard deduction for the following dependents is zero.

• A married dependent filing a separate return whose spouse itemizes deductions.
• A dependent who files a return for a period of less than 12 months due to a change in his or her annual accounting period.
• A nonresident or dual-status alien dependent, unless the dependent is married to a U.S. citizen or resident alien at the end of the year and chooses to be treated as a U.S. resident for the year. See Publication 519, U.S. Tax Guide for Aliens, for information on making this choice.

Dependent's Own Exemption

A person who can be claimed as a dependent on another taxpayer's return cannot claim his or her own exemption. This is true even if the other taxpayer does not actually claim the exemption.

Withholding From Wages

Employers generally withhold federal income tax, social security tax, and Medicare tax from an employee's wages. If the employee claims exemption from withholding on Form W-4, the employer will not withhold federal income tax. The exemption from withholding does not apply to social security and Medicare taxes.

Conditions for exemption from withholding.

An employee can claim exemption from withholding for 2010 only if he or she meets both of the following conditions.

1. For 2009, the employee had a right to a refund of all federal income tax withheld because he or she had no tax liability.
2. For 2010, the employee expects a refund of all federal income tax withheld because he or she expects to have no tax liability.

Dependents.

An employee who is a dependent ordinarily cannot claim exemption from withholding if both of the following are true.

• The employee's total income will be more than $950, the minimum standard deduction for 2010.
• The employee's unearned income will be more than $300.

Exceptions.

An employee may be able to claim exemption from withholding even if the employee is a dependent if the employee:

1. Is age 65 or older,
2. Is blind, or
3. Will claim on his or her 2010 tax return:
   1. Adjustments to income,
   2. Tax credits,
   3. Itemized deductions, or
   4. A higher standard deduction for real estate taxes, a net disaster loss, or state or local sales or excise tax on the purchase of a new motor vehicle after February 16, 2009.

Claiming exemption from withholding.

Renewing an exemption from withholding.

Part 2. Tax on Investment Income of Certain Children

The two rules that follow may affect the tax on the investment income of certain children.

1. If the child's interest and dividend income (including capital gain distributions) total less than $9,500, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. (See Parent's Election To Report Child's Interest and Dividends, later.)
2. If the child's interest, dividends, and other investment income total more than $1,900, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. (See Tax for Certain Children Who Have Investment Income of More Than $1,900, later.)

For these rules, the term “child” includes a legally adopted child and a stepchild. These rules apply whether or not the child is a dependent.

These rules do not apply if neither of the child's parents were living at the end of the year.

Which Parent's Return To Use

If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's investment income. The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Investment Income of More Than $1,900.

Parents Who Do Not File a Joint Return

For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax.

Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends.

Parents are married.

If the child's parents file separate returns, use the return of the parent with the greater taxable income.

Parents not living together.

Parents are divorced.

If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial parent) has not remarried, use the return of the custodial parent.

Custodial parent remarried.

If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Do not use the return of the noncustodial parent. If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies.

Parents never married.

If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. If the parents did not live together all year, the rules explained earlier under Parents are divorced apply.

Widowed parent remarried.

If a widow or widower remarries, the new spouse is treated as the child's other parent. The rules explained earlier under Custodial parent remarried apply.

Parent's Election To Report Child's Interest and Dividends

You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. If you do, your child will not have to file a return.

You can make this election only if all the following conditions are met.

• Your child was under age 19 (or under age 24 if a full-time student) at the end of the year.
• Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends).
• The child's gross income was less than $9,500.
• The child is required to file a return unless you make this election.
• The child does not file a joint return for the year.
• No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number.
• No federal income tax was taken out of your child's income under the backup withholding rules.
• You are the parent whose return must be used when applying the special tax rules for children. (See Which Parent's Return To Use, earlier.)

These conditions are also shown in Figure 1.

Certain January 1 birthdays.

A child born on January 1, 1991, is considered to be age 19 at the end of 2009. You cannot make this election for such a child unless the child was a full-time student. A child born on January 1, 1986, is considered to be age 24 at the end of 2009. You cannot make this election for such a child.

How to make the election.

Figure 1. Can You Include Your Child's Income On Your Tax Return?

Effect of Making the Election

The federal income tax on your child's income may be more if you make the Form 8814 election.

Rate may be higher.

If your child received qualified dividends or capital gain distributions, you may pay up to $95 more tax if you make this election instead of filing a separate tax return for the child. This is because the tax rate on the child's income between $950 and $1,900 is 10% if you make this election. However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions.

Deductions you cannot take.

• The additional standard deduction for a blind child.
• The deduction for a penalty on an early withdrawal of your child's savings.
• Itemized deductions (such as your child's investment expenses or charitable contributions).

Deductible investment interest.

Alternative minimum tax.

Reduced deductions or credits.

• Deduction for contributions to a traditional individual retirement arrangement (IRA).
• Deduction for student loan interest.
• Itemized deductions for medical expenses, certain casualty and theft losses, and certain miscellaneous expenses.
• Total itemized deductions.
• Personal exemptions.
• Credit for child and dependent care expenses.
• Child tax credit.
• Education tax credits.
• Earned income credit.
• Making work pay credit.
• First-time homebuyer credit.

Penalty for underpayment of estimated tax.

Figuring Child's Income

Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Only the amount over $1,900 is added to your income. The amount over $1,900 is shown on Form 8814, line 6. Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. Include the amount from Form 8814, line 12, on Form 1040 or Form 1040NR, line 21. If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040 or Form 1040NR, line 21. On the dotted line next to line 21, enter “Form 8814” and the total of the Form 8814, line 12 amounts.

Note.

The tax on the first $1,900 is figured on Form 8814, Part II. See Figuring Additional Tax, later.

Qualified dividends.

Capital gain distributions.

Collectibles (28% rate) gain.

Unrecaptured section 1250 gain.

Section 1202 gain.

Figuring Additional Tax

Use Form 8814, Part II, to figure the tax on the $1,900 of your child's interest and dividends that you do not include in your income. This tax is added to the tax figured on your income.

This additional tax is the smaller of:

1. 10% x (your child's gross income − $950), or
2. $95.

Filled-in Form 8814 for Linda Parks

Illustrated Example

David and Linda Parks are married and will file separate tax returns for 2009. Their only child, Philip, is 8. Philip received a Form 1099-INT showing $1,650 taxable interest income and a Form 1099-DIV showing $1,150 ordinary dividends. All the dividends were qualified dividends. His parents decide to include that income on one of their returns so they will not have to file a return for Philip.

First, David and Linda each figure their taxable income (Form 1040, line 43) without regard to Philip's income. David's taxable income is $56,700 and Linda's is $74,300. Because her taxable income is greater, Linda can elect to include Philip's income on her return. (See Which Parent's Return To Use, earlier.)

On Form 8814 (illustrated on page 14), Linda enters her name and social security number, then Philip's name and social security number. She enters Philip's taxable interest income, $1,650, on line 1a. Philip had no tax-exempt interest income, so she leaves line 1b blank. Linda enters Philip's ordinary dividends, $1,150, on line 2a. All of Philip's ordinary dividends were qualified dividends, so Linda also enters $1,150 on line 2b. Philip did not have any capital gain distributions, so she leaves line 3 blank.

Linda adds lines 1a and 2a and enters the result, $2,800, on line 4. Because Philip had qualified dividends, Linda must complete lines 7 through 11 of Form 8814. She includes the amount from line 9 of Form 8814 ($370) on lines 9a and 9b of her Form 1040. On the dotted lines next to lines 9a and 9b, she enters “Form 8814–$370.”

Linda includes $530 in the total on line 21 of her Form 1040 (not illustrated) and in the space next to that line writes “Form 8814–$530.” Adding that amount, plus the $370 of qualified dividends, to her income increases each of the amounts on lines 22, 37, 38, 41, and 43 of her Form 1040 by $900. Linda is not claiming any deductions that are affected by the increase to her income. Therefore, her revised taxable income on line 43 is $75,200 ($74,300 + $370 + $530).

On Form 8814, Linda subtracts the $950 shown on line 13 from the $2,800 on line 4 and enters the result, $1,850, on line 14. Because that amount is not less than $950, she enters $95 on line 15. This is the tax on the first $1,900 of Philip's income, which Linda did not have to add to her income. She must add this additional tax to the tax figured on her revised taxable income.

The tax on her $75,200 revised taxable income, figured using the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040 instructions, is $15,139. She adds $95, and enters the $15,234 total on Form 1040, line 44, and checks box a.
Linda attaches Form 8814 to her Form 1040.

Tax for Certain Children Who Have Investment Income of More Than $1,900

If a child's interest, dividends, and other investment income total more than $1,900, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Attach the completed form to the child's Form 1040, Form 1040A, or Form 1040NR.

When Form 8615 must be filed.

1. The child's investment income was more than $1,900.
2. The child is required to file a return for 2009.
3. The child either:
   1. Was under age 18 at the end of the year,
   2. Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or
   3. Was a full-time student over age 18 and under age 24 at the end of the year and did not have earned income that was more than half of his or her support.
4. At least one of the child's parents was alive at the end of 2009.
5. The child does not file a joint return for 2009.

Certain January 1 birthdays.

Figure 2. Do You Have To Use Form 8615 To Figure Your Child's Tax?

Providing Parental Information (Form 8615, Lines A–C)

On Form 8615, lines A and B, enter the parent's name and social security number. (If the parents filed a joint return, enter the name and social security number listed first on the joint return.) On line C, check the box for the parent's filing status.

See Which Parent's Return To Use, earlier, for information on which parent's return information must be used on Form 8615.

Parent with different tax year.

Parent's return information not known timely.

Extension of time to file.

Parent's return information not available.

If a child cannot get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the Internal Revenue Service (IRS).

How to request.

After the end of the tax year, send a signed, written request for the information to the Internal Revenue Service Center where the parent's return will be filed. (The IRS cannot process a request received before the end of the tax year.) You should also consider getting an extension of time to file the child's return, because there may be a delay in getting the requested information. The request must contain all of the following.

• A statement that you are making the request to comply with section 1(g) of the Internal Revenue Code and that you have tried to get the information from the parent.
• Proof of the child's age (for example, a copy of the child's birth certificate).
• Evidence the child has more than $1,900 of unearned income (for example, a copy of the child's prior year tax return or copies of Forms 1099 for the current year).
• The name, address, social security number (if known), and filing status (if known) of the parent whose information is to be shown on Form 8615.

Step 1. Figuring the Child's Net Investment Income (Form 8615, Part I)

The first step in figuring a child's tax using Form 8615 is to figure the child's net investment income. To do that, use Form 8615, Part I. For an example, see the Illustrated Part I of Form 8615 on the next page.

Line 1 (Investment Income)

If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Adjusted gross income is shown on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 36. Form 1040EZ and Form 1040NR-EZ cannot be used if Form 8615 must be filed.

If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form.

Investment income defined.

Investment income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. It includes taxable interest, dividends, capital gains (including capital gain distributions), the taxable part of social security and pension payments, and certain distributions from trusts. Investment income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages).

Nontaxable income.

For this purpose, investment income includes only amounts the child must include in total income. Nontaxable investment income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included.

Capital loss.

Illustrated Part I of Form 8615

Income from property received as a gift.

A child's investment income includes all income produced by property belonging to the child. This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. A child's investment income includes income produced by property given as a gift to the child. This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act.

Trust income.

Adjustment to income.

In figuring the amount to enter on line 1, the child's investment income is reduced by any penalty on the early withdrawal of savings.

Line 2 (Deductions)

If the child does not itemize deductions on Schedule A (Form 1040 or Form 1040NR), enter $1,900 on line 2.

If the child does itemize deductions, enter on line 2 the larger of:

1. $950 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29 (or Schedule A (Form 1040NR), line 17), that are directly connected with the production of the investment income entered on line 1, or
2. $1,900.

Directly connected.

Line 3

Subtract line 2 from line 1 and enter the result on this line. If zero or less, do not complete the rest of the form. However, you must still attach Form 8615 to the child's tax return. Figure the tax on the child's taxable income in the normal manner.

Line 4 (Child's Taxable Income)

Enter on line 4 the child's taxable income from Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 40.

Child files Form 2555 or 2555-EZ.

Line 5 (Net Investment Income)

A child's net investment income cannot be more than his or her taxable income. Enter on Form 8615, line 5, the smaller of line 3 or line 4. This is the child's net investment income.

If zero or less, do not complete the rest of the form. However, you must still attach Form 8615 to the child's tax return. Figure the tax on the child's taxable income in the normal manner.

Step 2. Figuring a Tentative Tax at the Parent's Tax Rate (Form 8615, Part II)

The next step in completing Form 8615 is to figure a tentative tax on the child's net investment income at the parent's tax rate. The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net investment income (plus the net investment income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it.

When figuring the tentative tax at the parent's tax rate, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net investment income. For example, do not refigure the medical expense deduction.

Figure the tentative tax on lines 6 through 13. For an example, see the Illustrated Part II of Form 8615 above.

Line 6 (Parent's Taxable Income)

Enter on line 6 the amount from the parent's Form 1040, line 43; Form 1040A, line 27; Form 1040EZ, line 6; Form 1040NR, line 40; or Form 1040NR-EZ, line 14. If the parent's taxable income is zero or less, enter zero on line 6.

Parent files Form 2555 or 2555-EZ.

Illustrated Part II of Form 8615

Line 7 (Net Investment Income of Other Children)

If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. Do not include the amount from line 5 of the Form 8615 being completed.

Other children's information not available.

Line 8 (Parent's Taxable Income Plus Children's Net Investment Income)

Enter on this line the total of lines 5, 6, and 7. You must determine the amount of net capital gain and qualified dividends included on this line before completing line 9 of Form 8615.

Net capital gain.

Qualified dividends.

Net capital gain and qualified dividends on line 8.

Note.

The amount of any net capital gain or qualified dividends is not separately reported on line 8. It is needed, however, when figuring the tax on line 9.

Line 9 (Tax on Parent's Taxable Income Plus Children's Net Investment Income)

Figure the tax on the amount on line 8 using the Tax Table, the Tax Computation Worksheet, the Qualified Dividends and Capital Gain Tax Worksheet (in the Form 1040, 1040A, or 1040NR instructions), the Schedule D Tax Worksheet (in the Schedule D instructions), or Schedule J (Form 1040), as follows.

• If line 8 does not include any net capital gain or qualified dividends, use the Tax Table or Tax Computation Worksheet to figure this tax. But if Schedule J, Income Averaging for Farmers and Fishermen, is used to figure the tax on the parent's return, use it to figure this tax.
• If line 8 does include any net capital gain or qualified dividends, use the Qualified Dividends and Capital Gain Tax Worksheet to figure this tax. For details, see the instructions for Form 8615, line 9. However, if the child, parent, or any other child has 28% rate gain or unrecaptured section 1250 gain, use the Schedule D Tax Worksheet. But if Schedule J is used to figure the tax on the parent's return, use it to figure this tax.

Child files Form 2555 or 2555-EZ.

Using the Schedule D Tax Worksheet for line 9 tax.

1. On line 1, enter the amount from Form 8615, line 8.
2. On line 2, enter the qualified dividends included on Form 8615, line 8. (See the earlier discussion for line 8.)
3. On line 3, enter the total of the amounts, if any, on line 4g of all Forms 4952 filed by the child, parent, or any other child.
4. On line 4, enter the total of the amounts, if any, on line 4e of all Forms 4952 filed by the child, parent, or any other child. If applicable, include instead the smaller amount entered on the dotted line next to line 4e.
5. On lines 5 and 6, follow the worksheet instructions.
6. On line 7, enter the net capital gain included on Form 8615, line 8. (See the earlier discussion for line 8.)
7. On lines 8 through 10, follow the worksheet instructions.
8. On line 11, enter zero if neither the child, parent, nor any other child has unrecaptured section 1250 gain (Schedule D, line 19) or 28% rate gain (Schedule D, line 18). Otherwise, enter the amount of unrecaptured section 1250 gain and 28% rate gain included in the net capital gain on line 8 of Form 8615. Figure these amounts as explained later under Figuring unrecaptured section 1250 gain (line 11) and Figuring 28% rate gain (line 11).
9. If the Foreign Earned Income Tax Worksheet was used to figure the parent's tax or the tax of any child, go to step 10 below. Otherwise, skip steps 10, 11, and 12 below, and go to step 13.
10. Determine whether there is a line 8 capital gain excess as follows.
    1. Add the amounts on line 2 of all Foreign Earned Income Tax Worksheets completed by the parent or any child for whom Form 8615 is filed. (But for each child do not add more than the excess, if any, of the amount on line 5 of the child's Form 8615 over the child's taxable income on Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 40.)
    2. Subtract (a) from the amount on line 1 of this Schedule D Tax Worksheet.
    3. Subtract (b) from the amount on line 10 of this Schedule D Tax Worksheet. If the result is more than zero, that amount is the line 8 capital gain excess. If the result is zero or less, there is no line 8 capital gain excess.
11. If there is no line 8 capital gain excess, skip step 12 below and go to step 13.
12. If there is a line 8 capital gain excess, complete a second Schedule D Tax Worksheet as instructed above and in step 13, but in its entirety and with the following additional modifications. (These modifications are to be made only for purposes of filling out this Schedule D Tax Worksheet.)
    1. Reduce the amount you would otherwise enter on line 9 (but not below zero) by the line 8 capital gain excess.
    2. Reduce the amount you would otherwise enter on line 6 (but not below zero) by any of the line 8 capital gain excess not used in (a) above.
    3. If the child, parent, or any other child has 28% rate gain, reduce the amount you would otherwise enter on line 8 of Worksheet 1 for Line 11 of the Schedule D Tax Worksheet – 28% Rate Gain (Line 9 Tax), shown later, (but not below zero) by the line 8 capital gain excess, and refigure the amount on line 11 of this Schedule D Tax Worksheet.
    4. If the child, parent, or any other child has unrecaptured section 1250 gain, reduce the amount you would otherwise enter on line 8 of Worksheet 2 for Line 11 of the Schedule D Tax Worksheet – Unrecaptured Section 1250 Gain (Line 9 Tax) (but not below zero) by the line 8 capital gain excess not used in 12(c), and refigure the amount on line 11 of this Schedule D Tax Worksheet.
13. Complete lines 12 through 36 following the worksheet instructions. Use the parent's filing status to complete lines 15, 33, and 35.

Figuring 28% rate gain (line 11).

Figuring unrecaptured section 1250 gain (line 11).

Using Schedule J for line 9 tax.

1. On line 1, enter the amount from Form 8615, line 8.
2. On lines 2a, 2b, and 2c, enter the amounts from the parent's Schedule J, lines 2a, 2b, and 2c.
3. Complete line 3 following the Schedule J instructions.
4. Complete line 4. If Form 8615, line 8, includes any net capital gain, use the Qualified Dividends and Capital Gain Tax Worksheet to figure the tax amount on this line. For details on how to use the worksheet, see the instructions for Form 8615, line 9, but use the amount on line 3 of this worksheet Schedule J (instead of the amount on Form 8615, line 8) in step (1) of Using the Qualified Dividends and Capital Gain Tax Worksheet for line 9 tax. However, if the child, parent, or any other child has 28% rate gain, or unrecaptured section 1250 gain, use the Schedule D Tax Worksheet. Follow the earlier instructions under Using the Schedule D Tax Worksheet for line 9 tax, except use the amount on line 3 of this worksheet Schedule J (instead of the amount on Form 8615, line 8) in step (1).
5. On lines 5 through 16, enter the amounts from the parent's Schedule J, lines 5 through 16.
6. Complete lines 17 and 18 following the Schedule J instructions.
7. On lines 19 through 22, enter the amounts from the parent's Schedule J, lines 19 through 22.
8. Complete line 23 following the Schedule J instructions.

Line 10 (Parent's Tax)

Enter on line 10 the amount from the parent's Form 1040, line 44; Form 1040A, line 28 (minus any alternative minimum tax); Form 1040EZ, line 11; Form 1040NR, line 41; or Form 1040NR-EZ, line 15. Do not include the tax, if any, from Form 4972 or Form 8814 or any tax from recapture of an education credit.

If the parent files Form 2555 or 2555-EZ, enter the amount from line 4 of the parent's Foreign Earned Income Tax Worksheet, instead of the parent's tax from Form 1040, line 44.

Line 11 (Tentative Tax)

Subtract line 10 from line 9 and enter the result on this line. This is the tentative tax.

If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. Also skip the discussion for lines 12a and 12b that follows.

Lines 12a and 12b (Dividing the Tentative Tax)

If an amount is entered on line 7, divide the tentative tax shown on line 11 among the children according to each child's share of the total net investment income. This is done on lines 12a, 12b, and 13. Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b.

Line 13 (Child's Share of Tentative Tax)

If an amount is entered on line 7, multiply line 11 by the decimal on line 12b and enter the result on line 13. This is the child's share of the tentative tax.

Step 3. Figuring the Child's Tax (Form 8615, Part III)

The final step in figuring a child's tax using Form 8615 is to determine the larger of:

1. The total of:
   1. The child's share of the tentative tax based on the parent's tax rate, plus
   2. The tax on the child's taxable income in excess of net investment income, figured at the child's tax rate, or
2. The tax on the child's taxable income, figured at the child's tax rate.

This is the child's tax. It is figured on Form 8615, lines 14 through 18.

Line 14 (Child's Taxable Income in Excess of Net Investment Income)

If lines 4 and 5 of Form 8615 are the same, the child's taxable income is not more than the child's net investment income. Enter zero on lines 14 and 15, and go to line 16. Also skip the rest of this discussion and the discussion for line 15 that follows.

If lines 4 and 5 are not the same, subtract line 5 from line 4 and enter the result on line 14. Then, before completing line 15, you must determine the amount of net capital gain and qualified dividends, if any, included on line 14.

Net capital gain and qualified dividends on line 14.

Line 15 (Tax on Child's Taxable Income in Excess of Net Investment Income)

Figure the tax on the amount on line 14 using the Tax Table, the Tax Computation Worksheet, the Qualified Dividends and Capital Gain Tax Worksheet, the Schedule D Tax Worksheet, or Schedule J (Form 1040), as follows.

• If line 14 does not include any net capital gain or qualified dividends, use the Tax Table or Tax Computation Worksheet (or Schedule J, if applicable) to figure this tax.
• If line 14 does include any net capital gain or qualified dividends, use the Qualified Dividends and Capital Gain Tax Worksheet to figure this tax. For details, see the instructions for Form 8615, line 15. However, if the child has 28% rate gain or unrecaptured section 1250 gain, use the Schedule D Tax Worksheet. (But use Schedule J instead, if it applies.)

Child files Form 2555 or 2555-EZ.

Using the Schedule D Tax Worksheet for line 15 tax.

1. On line 1, enter the amount from Form 8615, line 14.
2. On line 2, enter the qualified dividends included on Form 8615, line 14. (See the earlier discussion for line 14.)
3. Leave lines 3 through 5 blank.
4. Enter the amount from line 2 on line 6.
5. On line 7, enter the net capital gain included on Form 8615, line 14. (See the earlier discussion for line 14.)
6. Skip line 8.
7. Enter the amount from line 7 on line 9.
8. Complete line 10, following the worksheet instructions.
9. On line 11, enter zero if the child has no 28% rate gain (Schedule D, line 18) or unrecaptured section 1250 gain (Schedule D, line 19). Otherwise, see Worksheet 1 for Line 11 of the Schedule D Tax Worksheet – 28% Rate Gain (Line 9 Tax) and Worksheet 2 for Line 11 of the Schedule D Tax Worksheet – Unrecaptured Section 1250 Gain (Line 9 Tax) under Using the Schedule D Tax Worksheet for line 9 tax, earlier. For each worksheet you complete, subtract line 5 of that worksheet from line 1 of that worksheet, and include the result on line 11 of this worksheet.
10. If the child is not filing Form 2555 or 2555-EZ, skip steps 11, 12, and 13 below, and go to step 14. If the child is filing Form 2555 or 2555-EZ, go to step 11.
11. Determine whether there is a line 14 capital gain excess as follows.
    1. Subtract from line 2 of the child's Foreign Earned Income Tax Worksheet the excess, if any, of the amount on line 5 of the child's Form 8615 over the child's taxable income on Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 40.
    2. Subtract (a) from the amount on line 14 of Form 8615.
    3. Subtract (b) from the amount on line 10 of this Schedule D Tax Worksheet. If the result is more than zero, that amount is the line 14 capital gain excess. If the result is zero or less, there is no line 14 capital gain excess.
12. If there is no line 14 capital gain excess, skip step 13 below and go to step 14.
13. If there is a line 14 capital gain excess, complete a second Schedule D Tax Worksheet as instructed above and in step 14 below but in its entirety and with the following additional modifications. (These modifications are to be made only for purposes of filling out this Schedule D Tax Worksheet.)
    1. Reduce the amount you would otherwise enter on line 9 (but not below zero) by the line 14 capital gain excess.
    2. Reduce the amount you would otherwise enter on line 6 (but not below zero) by any of the line 14 capital gain excess not used in (a) above.
    3. If the child has 28% rate gain, reduce the amount you would otherwise enter on line 11, as figured in step 9, (but not below zero) by the line 14 capital gain excess.
    4. If the child has unrecaptured section 1250 gain, reduce the amount you would otherwise enter on line 11, as figured in step 9, (but not below zero) by the line 14 capital gain excess not used in (c) above.
14. Complete lines 12 through 36 following the worksheet instructions. Use the child's filing status to complete lines 15, 33, and 35.

Using Schedule J for line 15 tax.

Line 16 (Combined Tax)

Add lines 13 and 15 and enter the total on line 16. This is the child's tax figured at the parent's rate on net investment income and the child's rate on other income.

Line 17 (Tax at Child's Rate)

Figure the tax on the amount on line 4. Use the Tax Table, the Tax Computation Worksheet, the Qualified Dividends and Capital Gain Tax Worksheet, the Schedule D Tax Worksheet, or the child's actual Schedule J, whichever applies. Enter the tax amount on line 17. If it is from the Qualified Dividends and Capital Gain Tax Worksheet, the Schedule D Tax Worksheet, or Schedule J, check the box on that line.

Child files Form 2555 or 2555-EZ.

Line 18 (Tax)

Enter on line 18 the larger of line 16 or line 17. Also enter this amount on the child's Form 1040, line 44; Form 1040A, line 28; or Form 1040NR, line 41. This is the child's tax.

Child files Form 2555 or 2555-EZ.

Alternative Minimum Tax

A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. These items include accelerated depreciation and certain tax-exempt interest income. The AMT may also apply if the child has passive activity losses or certain distributions from estates or trusts.

For more information on who is liable for AMT and how to figure it, see Form 6251.

Limit on exemption amount.

Illustrated Example

This example shows how to fill out Forms 8615 and 1040A for Sara Brown. It also shows how to use the Qualified Dividends and Capital Gain Tax Worksheet in the Form 1040A instructions to figure Sara's tax.

John and Laura Brown have one child, Sara. She is 13 and has $1,050 taxable interest, $1,050 qualified dividend income, $700 capital gain distributions, and $1,550 earned income. She does not itemize deductions. John and Laura file a joint return with John's name and social security number listed first. They claim three exemptions, including an exemption for Sara, on their return.

Because she is under age 18 and has more than $1,900 investment income, part of her income may be subject to tax at her parents' rate. A completed Form 8615 must be attached to her return.

Sara's father, John, fills out Sara's return. He completes her Form 1040A through line 27, then begins completing her Form 8615.

John enters his name and social security number on Sara's Form 8615 because his name and number are listed first on the joint return he and Laura are filing. He checks the box for married filing jointly.

He enters Sara's investment income, $2,800, on line 1. Sara does not itemize deductions, so John enters $1,900 on line 2. He enters $900 ($2,800 − $1,900) on line 3.

Sara's taxable income, as shown on her Form 1040A, line 27, is $2,500. This is her total income ($4,350) minus her standard deduction ($1,850). Her standard deduction is limited to the amount of her earned income plus $300. John enters $2,500 on line 4.

John compares lines 3 and 4 and enters the smaller amount, $900, on line 5.

John enters $48,000 on line 6. This is the taxable income from line 43 of John and Laura's joint Form 1040 return. Sara is an only child, so line 7 is blank. He adds line 5 ($900), line 6 ($48,000), and line 7 (blank) and enters $48,900 on line 8.

Because Sara's capital gain distributions and qualified dividends are included on line 5, John uses Line 5 Worksheet #1 (in the instructions for Form 8615) to figure out that $225 net capital gain and $337 qualified dividends are included on line 5. He completes that worksheet as follows.

Sara's parents do not have a net capital gain or any qualified dividends, so no net capital gain or qualified dividends are on line 6 of Sara's Form 8615. Therefore, the amount of net capital gain on line 8 of Sara's Form 8615 is $225, and the amount of qualified dividends on that line is $337. John uses the Qualified Dividends and Capital Gain Tax Worksheet (in the Form 1040A instructions) and follows the instructions under Using the Qualified Dividends and Capital Gain Tax Worksheet for line 9 tax in the Form 8615 instructions to figure the tax to enter on Sara's Form 8615, line 9.

John enters $337 on line 2 of the Qualified Dividends and Capital Gain Tax Worksheet, and $225 on line 3 of that worksheet. That completed worksheet is shown later as Filled-in Qualified Dividends and Capital Gain Tax Worksheet #1. John enters the tax of $6,414 on Sara's Form 8615, line 9.

He enters the tax from his and Laura's Form 1040 ($6,369) on Sara's Form 8615, line 10, then subtracts that amount from the $6,414 on line 9, and enters the $45 remainder on line 11. Because line 7 is blank, John skips lines 12a and 12b and enters $45 on line 13.

John subtracts line 5 ($900) from line 4 ($2,500) and enters the result, $1,600, on line 14. Using the instructions for line 14 earlier, John subtracts the net capital gain included on line 5 ($225) from Sara's net capital gain ($700) to figure the $475 net capital gain included on line 14. He also subtracts the qualified dividends included on line 5 ($337) from Sara's qualified dividends ($1,050) to figure the $713 qualified dividends included on line 14. He uses another Qualified Dividends and Capital Gain Tax Worksheet and follows the instructions under Using the Qualified Dividends and Capital Gain Tax Worksheet for line 15 tax, in the Form 8615 instructions, to figure the $41 tax to enter on Form 8615, line 15. That completed worksheet is shown later as Filled-in Qualified Dividends and Capital Gain Tax Worksheet #2.

John adds lines 13 and 15 of Form 8615, and enters the sum, $86, on line 16. Then he uses another Qualified Dividends and Capital Gain Tax Worksheet to figure the $76 tax on Sara's $2,500 taxable income to enter on Form 8615, line 17. That completed worksheet is shown later as Filled-in Qualified Dividends and Capital Gain Tax Worksheet #3.

Finally, John compares lines 16 and 17 and enters the larger amount, $86, on line 18 of Sara's Form 8615. He also enters that amount on Sara's Form 1040A, line 28.

Publication 929 - Additional Material

Form 1040A, page 1, for Sara L. Brown

Form 1040A, page 2, for Sara L. Brown

Form 8615 for Sara L. Brown

Filled-in Qualified Dividends and Capital Gain Tax Worksheet #1

Filled-in Qualified Dividends and Capital Gain Tax Worksheet #2

Filled-in Qualified Dividends and Capital Gain Tax Worksheet #3