Form 8814, Parent's Election to Report Child's Interest and Dividends, allows a parent to include a child's qualifying investment income on the parent's tax return instead of filing a separate tax return for the child.
For many families, this election can simplify tax filing. However, it isn't always the most tax-efficient option because some of the child's income may be taxed at the parent's tax rate under the kiddie tax rules.
When Can You Use Form 8814?
You can elect to report your child's interest and dividend income on your return if all of the following requirements are met:
- Your child was under age 19 at the end of the tax year, or under age 24 and a full-time student.
- Your child's only income consists of interest, dividends, and capital gain distributions.
- Your child's gross income is less than $13,500 for the tax year.
- Your child is not filing a joint return.
- You can claim the child as a dependent on your tax return.
If any of these requirements aren't met, the child will generally need to file their own tax return.
Why Would a Parent Choose Form 8814?
The primary benefit is convenience. Instead of preparing and filing a separate return for the child, you can report the qualifying income directly on your own return. This election is often helpful when the child has a small amount of investment income and no earned income from wages or self-employment. However, simplicity doesn't always mean lower taxes. Before making the election, it's worth comparing the tax results because including the income on your return may increase the overall tax liability.
What Types of Income Can Be Reported on Form 8814?
Form 8814 is limited to certain types of unearned income, including:
- Interest income
- Dividend income
- Capital gain distributions reported on Form 1099-DIV
These income types are typically reported on Forms 1099-INT and 1099-DIV issued in the child's name.
When Can't Form 8814 Be Used?
You generally cannot use Form 8814 if the child has other types of income, such as:
- Wages reported on Form W-2
- Self-employment income
- Unemployment compensation
- Taxable scholarships not reported as interest or dividends
- Capital gains from the direct sale of investments
In these situations, the child will usually need to file a separate tax return.
How Does Form 8814 Affect the Kiddie Tax?
The kiddie tax rules are designed to prevent families from shifting investment income to children in lower tax brackets.
When you elect to use Form 8814:
- A portion of the child's income may be taxed at the parent's tax rate.
- The calculation is performed on Form 8814 and carried to the parent's Form 1040.
Because of this, filing a separate return for the child may sometimes produce a better tax result than making the election.
How Do I Enter Form 8814 in the Program?
To access Form 8814 in the program, go to:
- Federal
- Other Taxes
- Parent's Election to Report Child's Interest and Dividends (Form 8814)
Enter the child's qualifying interest and dividend income when prompted. The program will calculate the amount that must be included on your return and prepare Form 8814 if you qualify for the election.