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Free tax calculator Publication 575 - Introductory Material Table of Contents What's New Reminders IntroductionThe General Rule. Free tax calculator Individual retirement arrangements (IRAs). Free tax calculator Civil service retirement benefits. Free tax calculator Social security and equivalent tier 1 railroad retirement benefits. Free tax calculator Tax-sheltered annuity plans (403(b) plans). Free tax calculator Ordering forms and publications. Free tax calculator Tax questions. Free tax calculator Useful Items - You may want to see: What's New For purposes of the net investment income tax (NIIT), net investment income does not include distributions from a qualified retirement plan (for example, 401(a), 403(a), 403(b), 408, 408A, or 457(b) plans). Free tax calculator However, these distributions are taken into account when determining the modified adjusted gross income threshold. Free tax calculator Distributions from a nonqualified retirement plan are included in net investment income. Free tax calculator See Form 8960, Net Investment Income Tax - Individuals, Estates, and Trusts, and its instructions for more information. Free tax calculator Reminders Future developments. Free tax calculator  For the latest information about developments related to Publication 575, such as legislation enacted after it was published, go to www. Free tax calculator irs. Free tax calculator gov/pub575. Free tax calculator In-plan Roth rollovers. Free tax calculator   Starting in 2013, the American Taxpayer Relief Act of 2012 expanded the rules for in-plan Roth rollovers to include more taxpayers. Free tax calculator For more information, see In-plan Roth rollovers under Rollovers, discussed later. Free tax calculator Photographs of missing children. Free tax calculator  The Internal Revenue Service is a proud partner with the National Center for Missing and Exploited Children. Free tax calculator Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. Free tax calculator You can help bring these children home by looking at the photographs and calling 1-800-THE-LOST (1-800-843-5678) if you recognize a child. Free tax calculator Introduction This publication discusses the tax treatment of distributions you receive from pension and annuity plans and also shows you how to report the income on your federal income tax return. Free tax calculator How these distributions are taxed depends on whether they are periodic payments (amounts received as an annuity) that are paid at regular intervals over several years or nonperiodic payments (amounts not received as an annuity). Free tax calculator What is covered in this publication?   This publication contains information that you need to understand the following topics. Free tax calculator How to figure the tax-free part of periodic payments under a pension or annuity plan, including using a simple worksheet for payments under a qualified plan. Free tax calculator How to figure the tax-free part of nonperiodic payments from qualified and nonqualified plans, and how to use the optional methods to figure the tax on lump-sum distributions from pension, stock bonus, and profit-sharing plans. Free tax calculator How to roll over certain distributions from a retirement plan into another retirement plan or IRA. Free tax calculator How to report disability payments, and how beneficiaries and survivors of employees and retirees must report benefits paid to them. Free tax calculator How to report railroad retirement benefits. Free tax calculator When additional taxes on certain distributions may apply (including the tax on early distributions and the tax on excess accumulation). Free tax calculator For additional information on how to report pension or annuity payments on your federal income tax return, be sure to review the instructions on the back of Copies B, C, and 2 of the Form 1099-R that you received and the instructions for Form 1040, lines 16a and 16b (Form 1040A, lines 12a and 12b or Form 1040NR, lines 17a and 17b). Free tax calculator A “corrected” Form 1099-R replaces the corresponding original Form 1099-R if the original Form 1099-R contained an error. Free tax calculator Make sure you use the amounts shown on the corrected Form 1099-R when reporting information on your tax return. Free tax calculator What is not covered in this publication?   The following topics are not discussed in this publication. Free tax calculator The General Rule. Free tax calculator   This is the method generally used to determine the tax treatment of pension and annuity income from nonqualified plans (including commercial annuities). Free tax calculator For a qualified plan, you generally cannot use the General Rule unless your annuity starting date is before November 19, 1996. Free tax calculator Although this publication will help you determine whether you can use the General Rule, it will not help you use it to determine the tax treatment of your pension or annuity income. Free tax calculator For that and other information on the General Rule, see Publication 939, General Rule for Pensions and Annuities. Free tax calculator Individual retirement arrangements (IRAs). Free tax calculator   Information on the tax treatment of amounts you receive from an IRA is in Publication 590, Individual Retirement Arrangements (IRAs). Free tax calculator Civil service retirement benefits. Free tax calculator   If you are retired from the federal government (regular, phased, or disability retirement) or are the survivor or beneficiary of a federal employee or retiree who died, get Publication 721, Tax Guide to U. Free tax calculator S. Free tax calculator Civil Service Retirement Benefits. Free tax calculator Publication 721 covers the tax treatment of federal retirement benefits, primarily those paid under the Civil Service Retirement System (CSRS) or the Federal Employees' Retirement System (FERS). Free tax calculator It also covers benefits paid from the Thrift Savings Plan (TSP). Free tax calculator Social security and equivalent tier 1 railroad retirement benefits. Free tax calculator   For information about the tax treatment of these benefits, see Publication 915, Social Security and Equivalent Railroad Retirement Benefits. Free tax calculator However, this publication (575) covers the tax treatment of the non-social security equivalent benefit portion of tier 1 railroad retirement benefits, tier 2 benefits, vested dual benefits, and supplemental annuity benefits paid by the U. Free tax calculator S. Free tax calculator Railroad Retirement Board. Free tax calculator Tax-sheltered annuity plans (403(b) plans). Free tax calculator   If you work for a public school or certain tax-exempt organizations, you may be eligible to participate in a 403(b) retirement plan offered by your employer. Free tax calculator Although this publication covers the treatment of benefits under 403(b) plans and discusses in-plan Roth rollovers from 403(b) plans to designated Roth accounts, it does not cover other tax provisions that apply to these plans. Free tax calculator For that and other information on 403(b) plans, see Publication 571, Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations. Free tax calculator Comments and suggestions. Free tax calculator   We welcome your comments about this publication and your suggestions for future editions. Free tax calculator   You can write to us at the following address: Internal Revenue Service Tax Forms and Publications Division 1111 Constitution Ave. Free tax calculator NW, IR-6526 Washington, DC 20224   We respond to many letters by telephone. Free tax calculator Therefore, it would be helpful if you would include your daytime phone number, including the area code, in your correspondence. Free tax calculator   You can send your comments from www. Free tax calculator irs. Free tax calculator gov/formspubs/. Free tax calculator Click on “More Information” and then on “Comment on Tax Forms and Publications. Free tax calculator ”   Although we cannot respond individually to each comment received, we do appreciate your feedback and will consider your comments as we revise our tax products. Free tax calculator Ordering forms and publications. Free tax calculator   Visit www. Free tax calculator irs. Free tax calculator gov/formspubs/ to download forms and publications, call 1-800-TAX-FORM (1-800-829-3676), or write to the address below and receive a response within 10 days after your request is received. Free tax calculator Internal Revenue Service 1201 N. Free tax calculator Mitsubishi Motorway Bloomington, IL 61705-6613 Tax questions. Free tax calculator   If you have a tax question, check the information available on IRS. Free tax calculator gov or call 1-800-829-1040. Free tax calculator We cannot answer tax questions sent to either of the above addresses. Free tax calculator Useful Items - You may want to see: Publication 524 Credit for the Elderly or the Disabled 525 Taxable and Nontaxable Income 560 Retirement Plans for Small Business (SEP, SIMPLE, and Qualified Plans) 571 Tax-Sheltered Annuity Plans (403(b) Plans) For Employees of Public Schools and Certain Tax-Exempt Organizations 590 Individual Retirement Arrangements (IRAs) 721 Tax Guide to U. Free tax calculator S. Free tax calculator Civil Service Retirement Benefits 915 Social Security and Equivalent Railroad Retirement Benefits 939 General Rule for Pensions and Annuities Form (and Instructions) W-4P Withholding Certificate for Pension or Annuity Payments 1099-R Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. Free tax calculator 4972 Tax on Lump-Sum Distributions 5329 Additional Taxes on Qualified Plans (Including IRAs) and Other Tax-Favored Accounts See How To Get Tax Help near the end of this publication for information about getting publications and forms. Free tax calculator Prev  Up  Next   Home   More Online Publications
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Free tax calculator 31. Free tax calculator   Tax on Unearned Income of Certain Children Table of Contents What's New Introduction Useful Items - You may want to see: Which Parent's Return To UseParents Who Do Not File a Joint Return Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, lines A–C) Step 1. Free tax calculator Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. Free tax calculator Figuring Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. Free tax calculator Figuring the Child's Tax (Form 8615, Part III) What's New Net Investment Income Tax. Free tax calculator . Free tax calculator  For tax years beginning after December 31, 2012, a child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax (NIIT). Free tax calculator NIIT is a 3. Free tax calculator 8% tax on the lesser of the net investment income or the excess of the child's modified adjusted gross income (MAGI) over the threshold amount. Free tax calculator Use Form 8960, Net Investment Income Tax, to figure this tax. Free tax calculator For more information on NIIT, go to www. Free tax calculator irs. Free tax calculator gov and enter “Net Investment Income Tax” in the search box. Free tax calculator Introduction This chapter discusses the following two rules that may affect the tax on unearned income of certain children. Free tax calculator 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 choose to include that income on the parent's return rather than file a return for the child. Free tax calculator (See Parent's Election To Report Child's Interest and Dividends , later. Free tax calculator ) 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. Free tax calculator (See Tax for Certain Children Who Have Unearned Income , later. Free tax calculator ) For these rules, the term “child” includes a legally adopted child and a stepchild. Free tax calculator These rules apply whether or not the child is a dependent. Free tax calculator Useful Items - You may want to see: Publication 929 Tax Rules for Children and Dependents Form (and Instructions) 8615 Tax for Certain Children Who Have Unearned Income 8814 Parents' Election To Report Child's Interest and Dividends 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 unearned income. Free tax calculator 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 Unearned Income . Free tax calculator 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. Free tax calculator Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . Free tax calculator Parents are married. Free tax calculator   If the child's parents file separate returns, use the return of the parent with the greater taxable income. Free tax calculator Parents not living together. Free tax calculator   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. Free tax calculator If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. Free tax calculator   For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in chapter 2. Free tax calculator Parents are divorced. Free tax calculator   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. Free tax calculator Custodial parent remarried. Free tax calculator   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. Free tax calculator Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Free tax calculator Do not use the return of the noncustodial parent. Free tax calculator   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. Free tax calculator If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. Free tax calculator Parents never married. Free tax calculator   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. Free tax calculator If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. Free tax calculator Widowed parent remarried. Free tax calculator   If a widow or widower remarries, the new spouse is treated as the child's other parent. Free tax calculator The rules explained earlier under Custodial parent remarried apply. Free tax calculator 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. Free tax calculator If you do, your child will not have to file a return. Free tax calculator You can make this election only if all the following conditions are met. Free tax calculator Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. Free tax calculator Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). Free tax calculator The child's gross income was less than $10,000. Free tax calculator The child is required to file a return unless you make this election. Free tax calculator The child does not file a joint return for the year. Free tax calculator 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. Free tax calculator No federal income tax was taken out of your child's income under the backup withholding rules. Free tax calculator You are the parent whose return must be used when applying the special tax rules for children. Free tax calculator (See Which Parent's Return To Use , earlier. Free tax calculator ) These conditions are also shown in Figure 31-A. Free tax calculator Certain January 1 birthdays. Free tax calculator   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. Free tax calculator You cannot make this election for such a child unless the child was a full-time student. Free tax calculator   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. Free tax calculator You cannot make this election for such a child. Free tax calculator Full-time student. Free tax calculator   A full-time student is a child who during some part of each of any 5 calendar months of the year was enrolled as a full-time student at a school, or took a full-time on-farm training course given by a school or a state, county, or local government agency. Free tax calculator A school includes a technical, trade, or mechanical school. Free tax calculator It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. Free tax calculator How to make the election. Free tax calculator   Make the election by attaching Form 8814 to your Form 1040. Free tax calculator (If you make this election, you cannot file Form 1040A or Form 1040EZ. Free tax calculator ) Attach a separate Form 8814 for each child for whom you make the election. Free tax calculator You can make the election for one or more children and not for others. Free tax calculator Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. Free tax calculator Rate may be higher. Free tax calculator   If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. Free tax calculator This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. Free tax calculator 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. Free tax calculator Deductions you cannot take. Free tax calculator   By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. Free tax calculator The additional standard deduction if the child is blind. Free tax calculator The deduction for a penalty on an early withdrawal of your child's savings. Free tax calculator Itemized deductions (such as your child's investment expenses or charitable contributions). Free tax calculator Reduced deductions or credits. Free tax calculator   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return including the following. Free tax calculator Deduction for contributions to a traditional individual retirement arrangement (IRA). Free tax calculator Deduction for student loan interest. Free tax calculator Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. Free tax calculator Credit for child and dependent care expenses. Free tax calculator Child tax credit. Free tax calculator Education tax credits. Free tax calculator Earned income credit. Free tax calculator Penalty for underpayment of estimated tax. Free tax calculator   If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. Free tax calculator If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. Free tax calculator See chapter 4 for more information. Free tax calculator Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Free tax calculator Only the amount over $2,000 is added to your income. Free tax calculator The amount over $2,000 is shown on Form 8814, line 6. Free tax calculator Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. Free tax calculator Include the amount from Form 8814, line 12, on Form 1040, line 21. Free tax calculator Enter “Form 8814” on the dotted line next to line 21. Free tax calculator If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040, line 21. Free tax calculator Capital gain distributions and qualified dividends. Free tax calculator   If your child's dividend income included any capital gain distributions, see Capital gain distributions under Figuring Child's Income in Publication 929, Part 2. Free tax calculator If your child's dividend income included any qualified dividends, see Qualified dividends under Figuring Child's Income in Publication 929, Part 2. Free tax calculator Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. Free tax calculator This tax is added to the tax figured on your income. Free tax calculator This additional tax is the smaller of: 10% × (your child's gross income − $1,000), or $100. Free tax calculator Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44. Free tax calculator Check box a on Form 1040, line 44. Free tax calculator Figure 31-A. Free tax calculator Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. Free tax calculator Figure 31–A. Free tax calculator Can You Include Your Child's Income On Your Tax Return? Tax for Certain Children Who Have Unearned Income If a 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. Free tax calculator 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. Free tax calculator Attach the completed form to the child's Form 1040 or Form 1040A. Free tax calculator When Form 8615 must be filed. Free tax calculator   Form 8615 must be filed for a child if all of the following statements are true. Free tax calculator The child's investment income was more than $2,000. Free tax calculator The child is required to file a return for 2013. Free tax calculator The child either: Was under age 18 at the end of the year, 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 Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. Free tax calculator At least one of the child's parents was alive at the end of 2013. Free tax calculator The child does not file a joint return for 2013. Free tax calculator These conditions are also shown in  Figure 31-B. Free tax calculator Earned income. Free tax calculator   Earned income includes salaries, wages, tips, and other payments received for personal services performed. Free tax calculator It does not include unearned income as defined later in this chapter. Free tax calculator Support. Free tax calculator   Your child's support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. Free tax calculator To figure your child's support, count support provided by you, your child, and others. Free tax calculator However, a scholarship received by your child is not considered support if your child is a full-time student. Free tax calculator See chapter 3 for details about support. Free tax calculator Certain January 1 birthdays. Free tax calculator   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. Free tax calculator Figure 31-B. Free tax calculator Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. Free tax calculator Figure 31-B. Free tax calculator Do You Have To Use Form 8615 To Figure Your Child's Tax?    IF a child was born on. Free tax calculator . Free tax calculator . Free tax calculator THEN, at the end of 2013, the child is considered to be. Free tax calculator . Free tax calculator . Free tax calculator January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. Free tax calculator The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. Free tax calculator  **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. Free tax calculator  ***Do not use Form 8615 for this child. Free tax calculator Providing Parental Information (Form 8615, lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. Free tax calculator (If the parents filed a joint return, enter the name and social security number listed first on the joint return. Free tax calculator ) On line C, check the box for the parent's filing status. Free tax calculator See Which Parent's Return To Use at the beginning of this chapter for information on which parent's return information must be used on Form 8615. Free tax calculator Parent with different tax year. Free tax calculator   If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. Free tax calculator Parent's return information not known timely. Free tax calculator   If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. Free tax calculator   You can use any reasonable estimate. Free tax calculator This includes using information from last year's return. Free tax calculator If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. Free tax calculator    When you get the correct information, file an amended return on Form 1040X, Amended U. Free tax calculator S. Free tax calculator Individual Income Tax Return. Free tax calculator   Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. Free tax calculator S. Free tax calculator Individual Income Tax Return. Free tax calculator Extensions are discussed in chapter 1. Free tax calculator Step 1. Free tax calculator Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. Free tax calculator To do that, use Form 8615, Part I. Free tax calculator Line 1 (unearned income). Free tax calculator   If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Free tax calculator Adjusted gross income is shown on Form 1040, line 38, or Form 1040A, line 22. Free tax calculator Form 1040EZ cannot be used if Form 8615 must be filed. Free tax calculator   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. Free tax calculator   However, if the child has: excluded any foreign earned income, deducted either a loss from self-employment, or deducted a net operating loss from another year, then use the Alternate Worksheet for Form 8615, Line 1, in Publication 929 to figure the amount to enter on Form 8615, line 1. Free tax calculator Unearned income defined. Free tax calculator   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually done. Free tax calculator It includes taxable interest, dividends (including capital gain distributions), capital gains, unemployment compensation, the taxable part of social security and pension payments, and certain distributions from trusts. Free tax calculator Unearned 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). Free tax calculator Nontaxable income. Free tax calculator   For this purpose, unearned income includes only amounts the child must include in total income. Free tax calculator Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. Free tax calculator Income from property received as a gift. Free tax calculator   A child's unearned income includes all income produced by property belonging to the child. Free tax calculator 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. Free tax calculator   A child's unearned income includes income produced by property given as a gift to the child. Free tax calculator This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. Free tax calculator Example. Free tax calculator Amanda Black, age 13, received the following income. Free tax calculator Dividends — $800 Wages — $2,100 Taxable interest — $1,200 Tax-exempt interest — $100 Net capital gains — $100 The dividends were qualified dividends on stock given to her by her grandparents. Free tax calculator Amanda's unearned income is $2,100. Free tax calculator This is the total of the dividends ($800), taxable interest ($1,200), and net capital gains ($100). Free tax calculator Her wages are earned (not unearned) income because they are received for work actually done. Free tax calculator Her tax-exempt interest is not included because it is nontaxable. Free tax calculator Trust income. Free tax calculator   If a child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to the child. Free tax calculator   However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income, not unearned income. Free tax calculator Line 2 (deductions). Free tax calculator   If the child does not itemize deductions on Schedule A (Form 1040), enter $2,000 on line 2. Free tax calculator   If the child does itemize deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29, that are directly connected with the production of unearned income entered on line 1, or $2,000. Free tax calculator Directly connected. Free tax calculator   Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. Free tax calculator These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. Free tax calculator   These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). Free tax calculator Only the amount greater than 2% of the child's adjusted gross income can be deducted. Free tax calculator See chapter 28 for more information. Free tax calculator Example 1. Free tax calculator Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2% limit) that are directly connected with his unearned income. Free tax calculator His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. Free tax calculator Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly connected itemized deductions of $300. Free tax calculator Example 2. Free tax calculator Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. Free tax calculator She has no other income. Free tax calculator She has itemized deductions of $1,050 (net of the 2% limit) that are directly connected with the production of her unearned income. Free tax calculator Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). Free tax calculator The amount on line 2 is $2,050. Free tax calculator This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. Free tax calculator Line 3. Free tax calculator   Subtract line 2 from line 1 and enter the result on this line. Free tax calculator If zero or less, do not complete the rest of the form. Free tax calculator However, you must still attach Form 8615 to the child's tax return. Free tax calculator Figure the tax on the child's taxable income in the normal manner. Free tax calculator Line 4 (child's taxable income). Free tax calculator   Enter on line 4 the child's taxable income from Form 1040, line 43, or Form 1040A, line 27. Free tax calculator   However, if the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, see the Form 8615 instructions or Pub. Free tax calculator 929. Free tax calculator Line 5 (net unearned income). Free tax calculator   A child's net unearned income cannot be more than his or her taxable income. Free tax calculator Enter on Form 8615, line 5, the smaller of line 3 or line 4. Free tax calculator This is the child's net unearned income. Free tax calculator   If zero or less, do not complete the rest of the form. Free tax calculator However, you must still attach Form 8615 to the child's tax return. Free tax calculator Figure the tax on the child's taxable income in the normal manner. Free tax calculator Step 2. Free tax calculator Figuring 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 unearned income at the parent's tax rate. Free tax calculator 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 unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. Free tax calculator When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. Free tax calculator For example, do not refigure the medical expense deduction. Free tax calculator Figure the tentative tax on Form 8615, lines 6 through 13. Free tax calculator Note. Free tax calculator If the child or parent has any capital gains or losses, get Publication 929 for help in completing Form 8615, Part II. Free tax calculator Line 6 (parent's taxable income). Free tax calculator   Enter on line 6 the parent's taxable income from Form 1040, line 43, Form 1040A, line 27, or Form 1040EZ, line 6. Free tax calculator   If the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) was used to figure the parent's tax, enter the amount from line 3 of that worksheet instead of the parent's taxable income. Free tax calculator Line 7 (net unearned income of other children). Free tax calculator   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. Free tax calculator Do not include the amount from line 5 of the Form 8615 being completed. Free tax calculator Example. Free tax calculator Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. Free tax calculator The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon — $800 Jerry — $600 Mike — $1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. Free tax calculator Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). Free tax calculator Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). Free tax calculator Other children's information not available. Free tax calculator   If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. Free tax calculator See Parent's return information not known timely , earlier. Free tax calculator Line 11 (tentative tax). Free tax calculator   Subtract line 10 from line 9 and enter the result on this line. Free tax calculator This is the tentative tax. Free tax calculator   If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. Free tax calculator Also skip the discussion for lines 12a and 12b that follows. Free tax calculator Lines 12a and 12b (dividing the tentative tax). Free tax calculator   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 unearned income. Free tax calculator This is done on lines 12a, 12b, and 13. Free tax calculator Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. Free tax calculator Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b. Free tax calculator Example. Free tax calculator In the earlier example under Line 7 (net unearned income of other children), Sharon's Form 8615 shows $1,600 on line 7. Free tax calculator The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). Free tax calculator The decimal on line 12b is  . Free tax calculator 333, figured as follows and rounded to three places. Free tax calculator   $800 = . Free tax calculator 333     $2,400   Step 3. Free tax calculator 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: The total of: The child's share of the tentative tax based on the parent's tax rate, plus The tax on the child's taxable income in excess of net unearned income, figured at the child's tax rate, or The tax on the child's taxable income, figured at the child's tax rate. Free tax calculator This is the child's tax. Free tax calculator It is figured on Form 8615, lines 14 through 18. Free tax calculator Alternative minimum tax. Free tax calculator   A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. Free tax calculator See Alternative Minimum Tax (AMT) in chapter 30. Free tax calculator    For more information on who is liable for AMT and how to figure it, see Form 6251, Alternative Minimum Tax—Individuals. Free tax calculator For information on special limits that apply to a child who files Form 6251, see Certain Children Under Age 24 in the Instructions for Form 6251. Free tax calculator Prev  Up  Next   Home   More Online Publications