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Reporting Your Child-s Unearned Income
If your child has less than $1,000 in interest, dividends, capital gains and other unearned income, it is sheltered with the standard deduction. The next $1000 of income is taxed at the child’s low tax rate. Any excess may be taxable at the parent’s top rate under the “kiddie tax” rules. The kiddie tax applies to unearned income above $2,000 for 2014 ($2,100 in 2015).
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You may elect to report the child’s income on your own tax return to avoid filing a tax return for your child — Form 8814, Parent’s Election to Report Child’s Interest and Dividends. In order to qualify, the child needs to be under age 19; or under age 24 if a full-time student. Additionally, the child’s interest and dividend income must be less than $10,000 for the tax year in order to include them on the parent’s return rather than file a return for the child. If you find yourself in this situation, consult your tax professional for details and the best option for you.