Form 8814 Instructions
Form 8814 is a tax form that parents can use to claim their child’s taxable income from capital gains and dividends on their tax return. If the parents claim the child’s income on their taxes, they do not have to file a separate return in the child’s name. This form also shows them how to figure out the child’s tax rate, and how it will influence the parent’s taxable income.
Form 8814 qualifications
A parent can elect to claim their child with Form 8814 if the parent and child meet the following requirements.
Form 8814 child qualifications
The child must meet the following guidelines.
- Age 19 or under at the end of the previous tax year, or under age 24 if the child is a student
- Interests, dividends, and capital gains distribution was the child’s sole income
- The child’s gross income did not exceed $10,500 for the previous taxable year
- The child must file a tax return for the year in question
- The child does not file a joint tax return for the same year
- There was no Federal withholding of the child’s income
- The child did not pay estimated tax payments for the year
The Internal Revenue Service (IRS) uses slightly different guidelines for determining a child’s age. In most cases, the agency uses the standard calendar year. However, children who will turn 19 or 24 on January 1 are considered a year older at the time of filing. In other words, if an 18-year-old filing taxes will turn 19 on January 1 of the following year, their parents cannot use form 8814 to claim the child’s income on their taxes.
Form 8814 parental qualifications
Parents must meet one of these requirements.
- If the parents are filing jointly, they may both claim the child’s income on their taxes.
- If the parents are filing separately, the parent with the higher taxable income qualifies for Form 8814.
- If the parent is single, divorced, widowed or legally separated and has legal rights to the child, the parent may use Form 8814 to claim the child’s income.
Deciding whether to use Form 8814
Sometimes it is more cost effective to claim your child’s taxable income, so they do not have to file on their own. The special tax rate on qualified dividends and capital gains can make the child’s tax rate lower when the child files on their own. But in other cases, claiming a child’s income can raise the parent’s tax rate.
If you choose to file an individual return for your child, you will need to use Form 8615. You will use Form 8814 to report your child’s income with your own. It is a good idea to run the numbers for both Form 8814 and 8615 to figure out which method results in a lower tax liability.
Considering tax break implications
Keep in mind that entering your child’s income on your tax return can cost you tax breaks. Including their income with yours may raise your income above certain thresholds. If this occurs, you may receive reduced benefit from your usual tax breaks or eliminate the break entirely. This also factors into whether it is more expensive for your child to file separately.
Form 8814 instructions
As a parent choosing to make the election, a copy of Form 8814 must be attached to either a Form 1040 or Form 1040NR. To make the election for multiple children, file a separate Form 8814 for each child.
Enter the child's ordinary dividends on line 2a of Form 8814; the amount may include qualified dividends. You can find the qualified dividends on line 9b of Form 1040, or on line 10b of Form1040NR. Qualified dividends are eligible for lower tax rates on net capital gains.
You must report a portion of the qualified dividends your child receives on lines 9a and 9b of Form 1040, or line 10a and 10b of Form1040NR. Only report the amount of these dividends that is added to your income. Do not include these dividends on line 12 of Form 8814. Enter the total dividend amount on line 9 of Form 8814 on lines 9a and 9b of the 1040 Form, or 10a and 10b of the 1040NR Form.
Use Section 1 of Form 8814 to help figure children’s income, including both interest and dividends. You will only add the amount over $2,100 to your income. You will find the amount exceeding $2,100 on Form 8814, line 6. If your child does not have capital gains distribution or qualified dividends, the same amount will be on line 12 of Form 8814. Transfer that amount to line 21 of Form 1040 or 1040NR. Beside line 21 on Form 1040 or 1040NR, enter Form 8814 and the total found on Form 8814, line 12.
Reporting capital gains distributions
Line 3 on Form 8814 is for entering the child’s capital gain distributions. Write the portion of this amount that adds to your income on line 13 of Schedule D, which must be filed with Form 1040. If you do not have to file Schedule D, enter the amount on line 13 of Form 1040 or line 14 of Form 1040NR.
Include the amount from line 10 of Form 8814 on line 13 of Schedule D, line 13 of Form 1040 or line 14 of Form 1040NR. Sometimes the total on Form 8814 line 10 is less than the amount on line 3 of the same form. This is because lines 7-9 divide and distribute the base amount of $2,100 among all the qualified dividend and capital gain interests. This distribution lowers the amount of each item.
If the child has any collectibles stated on Form 1099-DIV, then you must attach a 28 percent Rate Gain Worksheet to Form 1040. You must calculate the portion to include on line 4 of the Rate Gain Worksheet. Find instructions for this calculation on line 18 the instructions for Schedule D.
Unrecaptured section 1250 gain
If capital gains were reported as unrecaptured on Form 1099-DIV, you must fill out an Unrecaptured Section 1250 Gain Worksheet. Figure the amount to include on line 11 of the worksheet by reviewing line 19 of the instructions for Schedule D.
Section 1202 gains
If the child has any gain on qualified small business stocks reported on Form 1099-DIV, some if not all this amount may count as a tax exclusion. To figure the child’s section 1202 gain, multiply the capital gain distribution amount on line 13 of Schedule D by a fraction. The fraction’s top number is the child’s total capital gain distribution; the bottom number is the child’s total gain distribution. The Section 1202 exclusion is typically half of the result. However, refer to the instructions for Schedule D. You may be able to exclude more than 50 percent of the amount.
Figuring additional tax
Part II of Form 8814 is for figuring the tax on the $2,100 of your child’s income that you do not include in your income. You will add this tax to the tax you already owe on your income. The additional tax amount is the smaller of two options.
- Subtract $1,050 from your child’s income, then multiply the result by 10 percent.
- Use $105.
Make sure you include the amount from line 15 of each Form 8814 in the total amount listed on line 44 of Form 1040 or line 42 of Form 1040NR. You will also need to check a box on the same line.
Form 8814 provides a way for you to avoid filing a separate return for your child. However, it is important to consider the impact on your overall tax liability before making the decision. Make sure you know how your choice will affect your finances before moving forward.