Special Tax Rules for Children With Investment Income

April 20, 2023

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Special tax rules may apply to some children who received investment income in 2022 or expect to receive it in 2023. Investment income generally includes interest, dividends, and capital gains. It also includes other unearned income, such as taxable scholarships or from a trust. These rules may affect the amount of tax and how to report the income.

If your child has investment income, here are some important points to keep in mind:

Parent’s Tax Rate. If your child’s total investment income is more than $2,300 ($2,500 in 2023), your tax rate may apply to part of that income instead of your child’s tax rate. See the instructions for Form 8615, Tax for Certain Children Who Have Unearned Income.

Parent’s Return. You may be able to include your child’s investment income on your 2022 tax return if it was more than $1,150 but less than $11,500 for the year ($1,250 and $12,500, respectively, in 2023). If you make this choice, your child will not have to file their own return. For more information, see Form 8814, Parents’ Election to Report Child’s Interest and Dividends.

Child’s Return. If your child’s investment income was $11,500 or more in 2022 ($12,500 in 2023), they must file their own return. File Form 8615 with the child’s federal tax return.

Net Investment Income Tax. Your child may be subject to the Net Investment Income Tax if they must file Form 8615. Use Form 8960, Net Investment Income Tax, to figure this tax.

If you have any questions about your child’s investment income, don’t hesitate to call.

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