IRS Releases Publication 929 (2016), Tax Rules for Children and Dependents

Future Developments

For the latest information about developments related to Publication 929, such as legislation enacted after this publication was published, go to http://www.irs.gov/pub929.

Reminders

Social security number (SSN). Dependents who are required to file a tax return must have an SSN. To apply for an SSN, file Form SS-5 with the Social Security Administration. You can go to the website http://www.socialsecurity.gov for more information.

Individual taxpayer identification number (ITIN). The IRS will issue an ITIN to a nonresident or resident alien who doesn't have and isn't eligible to get an SSN. To apply for an ITIN, file Form W-7, Application for IRS Individual Taxpayer Identification Number, with the IRS. It takes 6-10 weeks to get an ITIN. The ITIN is entered wherever an SSN is requested on a tax return. If you are a nonresident alien applying for an ITIN to file a tax return, you generally must attach your original, completed return to Form W-7 to get an ITIN. See the Form W-7 instructions for more information.

An ITIN is for tax use only. It doesn't entitle you to social security benefits or change your employment or immigration status under U.S. law. If you were assigned an ITIN before January 1, 2013, or if you have an ITIN that you haven't included on a tax return in the last 3 consecutive years, you may need to renew it. For more information see the instructions for Form W-7.

Photographs of missing children. The Internal Revenue Service is a proud partner with the National Center for Missing & Exploited Children® (NCMEC). Photographs of missing children selected by the Center may appear in this publication on pages that would otherwise be blank. 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.

Net Investment Income Tax. A child whose tax is figured on Form 8615 may be subject to the Net Investment Income Tax (NIIT). See the instructions for Form 8960 for more information.

Introduction

Part 1 of this publication explains the filing requirements and other tax information for individuals who can be claimed as a dependent on another person's tax return. Part 2 explains how to report and figure the tax on unearned income of certain children (whether or not they can be claimed as dependents).

Definitions. Many of the terms used in this publication, such as "dependent," "earned income," and "unearned income," are defined in the Glossary at the back of this publication.

Comments and suggestions. We welcome your comments about this publication and your suggestions for future editions.

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Tax questions. If you have a tax question not answered by this publication, check IRS.gov and How To Get Tax Help at the end of this publication.

Useful Items

You may want to see:

Publication

Part 1. Rules for All Dependents

Terms you may need to know (see Glossary):

Filing Requirements

Whether a dependent has to file a return generally depends on the amount of the dependent's earned and unearned income and whether the dependent is married, is age 65 or older, or is blind.

CAUTION: A dependent may have to file a return even if his or her income is less than the amount that would normally require a return. See Other Filing Requirements, later.

The following sections apply to dependents with:

Earned Income Only

A dependent whose gross income is only earned income must file a return if the gross income is more than the amount listed in the following table.

 Marital Status                Amount

He must file a tax return because he has earned income only and his gross income is more than $6,300. If he is blind, he doesn't have to file a return because his gross income isn't more than $7,850.

Unearned Income Only

A dependent whose gross income is only unearned income must file a return if the gross income is more than the amount listed in the following table.

 Marital Status                Amount

She must file a tax return because she has unearned income only and her gross income is more than $1,050. If she is blind, she doesn't have to file a return because she has unearned income only and her gross income isn't more than $2,600.

Election to report child's unearned income on parent's return. A parent of a child under age 19 (or under age 24 if a full-time student) may be able to elect to include the child's interest and dividend income on the parent's return. See Parent's Election To Report Child's Interest and Dividends in Part 2. If the parent makes this election, the child doesn't have to file a return.

Both Earned and Unearned Income

A dependent who has both earned and unearned income generally must file a return if the dependent's gross income is more than line 5 of the following worksheet.

                  Filing Requirement Worksheet

 ----------------------------------------------------------------------

He doesn't have to file a tax return because his gross income of $2,950 ($200 interest plus $2,750 in wages) isn't more than $3,100, the amount on line 5 of his filled-in (Example 1) Filing Requirement Worksheet for Most Dependents.

                        Filled-in Example 1

He must file a tax return because his gross income of $3,350 ($600 interest plus $2,750 wages) is more than $3,100, the amount on line 5 of his filled-in (Example 2) worksheet.

                        Filled-in Example 2

                     Filing Requirement Worksheet

                         Filled-in Example 3

A dependent must file a tax return if he or she owes any other taxes, such as:

Should a Return Be Filed Even If Not Required?

Even if a dependent doesn't meet any of the filing requirements discussed earlier, he or she should file a tax return if either of the following applies.

Responsibility for Child's Return

Generally, a child is responsible for filing his or her own tax return and for paying any tax, penalties, or interest on that return. If a child can't file his or her own return for any reason, such as age, the child's parent, guardian, or other legally responsible person must file it for the child.

Signing the child's return. If the child can't sign his or her return, a parent or guardian must sign the child's name followed by the words "By (signature), parent (or guardian) for minor child."

Authority of parent or guardian. A parent or guardian who signs a return on a child's behalf can deal with the IRS on all matters connected with the return.

In general, a parent or guardian who doesn't sign the child's return can only provide information concerning the child's return and pay the child's tax. That parent or guardian isn't entitled to receive information from the IRS or legally bind the child to a tax liability arising from the return.

Third party designee. A child's parent or guardian who doesn't sign the child's return may be authorized, as a third party designee, to discuss the processing of the return with the IRS as well as provide information concerning the return. The child or the person signing the return on the child's behalf must check the "Yes" box in the "Third Party Designee" area of the return and name the parent or guardian as the designee.

If designated, a parent or guardian can respond to certain IRS notices and receive information about the processing of the return and the status of a refund or payment. This designation doesn't authorize the parent or guardian to receive any refund check, bind the child to any tax liability, or otherwise represent the child before the IRS. See the return instructions for more information.

Designated as representative. A parent or guardian who doesn't sign the child's return may be designated as the child's representative by the child or the person signing the return on the child's behalf. Form 2848, Power of Attorney and Declaration of Representative, is used to designate a child's representative. See Pub. 947, Practice Before the IRS and Power of Attorney, for more information.

If designated, a parent or guardian can receive information about the child's return but can't legally bind the child to a tax liability unless authorized to do so by the law of the state in which the child lives.

IRS notice. If you or the child receives a notice from the IRS concerning the child's return or tax liability, you should immediately inform the IRS that the notice concerns a child. The notice will show who to contact. The IRS will try to resolve the matter with the parent(s) or guardian(s) of the child consistent with their authority.

Child's earnings. For federal income tax purposes, amounts a child earns by performing services are included in the gross income of the child and not the gross income of the parent. This is true even if, under state law, the parent has the right to the earnings and may actually have received them.

If the child doesn't pay the tax due on this income, the parent may be liable for the tax.

Child's expenses. Deductions for payments that are made out of a child's earnings are the child's, even if the payments are made by the parent.

Example. You made payments on your child's behalf that are deductible as a business expense and a charitable contribution. You made the payments out of your child's earnings. These items can be deducted only on the child's return.

Standard Deduction

The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the larger of:

Worksheet 1. Standard Deduction Worksheet for Dependents

 Keep for Your Records

Example 1. Michael is single, age 15, and not blind. His parents can claim him as a dependent on their tax return. He has taxable interest income of $800 and wages of $150. He enters $500 (his earned income plus $350) on line 1 of Worksheet 1. On line 3, he enters $1,050, the larger of $500 or $1,050. Michael enters $6,300 on line 4. On line 5a, he enters $1,050, the smaller of $1,050 or $6,300. His standard deduction is $1,050.

Example 2. Judy, a full-time student, is single, age 22, and not blind. Her parents can claim her as a dependent on their tax return. She has dividend income of $275 and wages of $2,500. She enters $2,850 (her earned income plus $350) on line 1 of Worksheet 1. On line 3, she enters $2,850, the larger of $2,850 or $1,050. She enters $6,300 on line 4. On line 5a, she enters $2,850 (the smaller of $2,850 or $6,300) as her standard deduction.

Example 3. Amy, who is single, is claimed as a dependent on her parents' tax return. She is 18 years old and blind. She has taxable interest income of $1,050 and wages of $2,000. She enters $2,350 (her earned income plus $350) on line 1 of Worksheet 1. She enters $2,350 (the larger of $2,350 or $1,050) on line 3, $6,300 on line 4, and $2,350 (the smaller of $2,350 or $6,300) on line 5a. Because Amy is blind, she checks the box for blindness and enters "1" in box c at the top of Worksheet 1. She enters $1,550 (the number in box c times $1,550) on line 5b. Her standard deduction on line 5c is $3,900 ($2,350 + $1,550).

Standard Deduction of Zero

The standard deduction for the following dependents is zero.

Dependent's Own Exemption

A person who can be claimed as a dependent on another taxpayer's return can't claim his or her own exemption. This is true even if the other taxpayer doesn't actually claim the exemption.

Example. James and Barbara can claim their child, Ben, as a dependent on their return. Ben is a college student who works during the summer and must file a tax return. Ben can't claim his own exemption on his return. This is true even if James and Barbara don't claim him as a dependent on their return.

Withholding From Wages

Employers generally withhold federal income tax, social security tax, and Medicare tax from an employee's wages. If the employee claims exemption from withholding on Form W-4, the employer won't withhold federal income tax. The exemption from withholding doesn't apply to social security and Medicare taxes.

Conditions for exemption from withholding. An employee can claim exemption from withholding for 2017 only if he or she meets both of the following conditions.

Example. Guy is 17 and a student. During the summer he works part time at a grocery store. He expects to earn about $1,200 this year. He also worked at the store last summer and received a refund of all his withheld income tax because he didn't have a tax liability. The only other income he expects during the year is $375 interest on a savings account. He expects that his parents will be able to claim him as a dependent on their tax return. He isn't blind and won't claim adjustments to income, itemized deductions, a higher standard deduction, or tax credits on his return.

Guy can't claim exemption from withholding when he fills out Form W-4 because his parents will be able to claim him as a dependent, his gross income will be more than $1,050 (the 2017 minimum standard deduction amount) and his unearned income will be more than $350.

Claiming exemption from withholding. To claim exemption from withholding, an employee must enter "Exempt" in the space provided on Form W-4, line 7. The employee must complete the rest of the form, as explained in the form instructions, and give it to his or her employer.

Renewing an exemption from withholding. An exemption from withholding is good for only 1 year. An employee must file a new Form W-4 by February 15 each year to continue the exemption.

Part 2. Tax on Unearned Income of Certain Children

Terms you may need to know (see Glossary):

These rules don't apply if neither of the child's parents were living at the end of the year.

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. 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.

Parents Who Don't File a Joint Return

For parents who don't file a joint return, the following discussions explain which parent's tax return must be used to figure the tax.

Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends.

Parents are married. If the child's parents file separate returns, use the return of the parent with the greater taxable income.

Parents not living together. 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. If the custodial parent isn't considered unmarried, use the return of the parent with the greater taxable income.

For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in Pub. 501.

Parents are divorced. 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) hasn't remarried, use the return of the custodial parent.

Custodial parent remarried. If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Don't use the return of the noncustodial parent.

If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies.

Parents never married. 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. If the parents didn't live together all year, the rules explained earlier under Parents are divorced apply.

Widowed parent remarried. If a widow or widower remarries, the new spouse is treated as the child's other parent. The rules explained earlier under Custodial parent remarried apply.

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. If you do, your child won't have to file a return.

You can make this election only if all the following conditions are met.

Certain January 1 birthdays. A child born on January 1, 1998, is considered to be age 19 at the end of 2016. You can't make this election for such a child unless the child was a full-time student.

A child born on January 1, 1993, is considered to be age 24 at the end of 2016. You can't make this election for such a child.

How to make the election. Make the election by attaching Form 1040 or Form 1040NR. (If you make this election, you can't file Form 1040EZ.) Attach a separate Form 8814 for each child for whom you make the election. You can make the election for one or more children and not for others.

Effect of Making the Election

The federal income tax on your child's income may be more if you make the Form 8814 election.

Rate may be higher. If your child received qualified dividends or capital gain distributions, you may pay up to $105 more tax if you make this election instead of filing a separate tax return for the child. This is because the tax rate on the child's income between $1,050 and $2,100 is 10% if you make this election. 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.

Deductions you can't take. By making the Form 8814 election, you can't take any of the following deductions that the child would be entitled to on his or her return.

Alternative minimum tax. If your child received tax-exempt interest (or exempt-interest dividends paid by a regulated investment company) from certain private activity bonds, you must determine if that interest is a tax preference item for alternative minimum tax (AMT) purposes. If it is, you must include it with your own tax preference items when figuring your AMT. See Form 6251, Alternative Minimum Tax--Individuals, and its instructions for details.

Net Investment Income Tax. When figuring any Net Investment Income Tax liability on Form 8960, the amount on line 12 of Form 8814 (other than Alaska Permanent Fund dividends) will increase the amount of your net investment income reported on Form 8960. See the Form 8960 instructions for more information.

Reduced deductions or credits. If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return, including the following.

Figuring Child's Income

Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Only the amount over $2,100 is added to your income. The amount over $2,100 is shown on Form 8814, line 6. Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. Include the amount from Form 8814, line 12, on Form 1040 or Form 1040NR, line 21. If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040 or Form 1040NR, line 21. On the dotted line next to line 21, enter "Form 8814" and the total of the Form 8814, line 12 amounts.

Note. The tax on the first $2,100 is figured on Form 8814, Part II. See Figuring Additional Tax, later.

Qualified dividends. Enter on Form 8814, line 2a, any ordinary dividends your child received. This amount may include qualified dividends. Qualified dividends are those dividends reported on Form 1040, line 9b, or Form 1040NR, line 10b, and are eligible for lower tax rates that apply to a net capital gain. For detailed information about qualified dividends, see Pub. 550.

If your child received qualified dividends, the amount of these dividends that is added to your income must be reported on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. You don't include these dividends on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR.

Enter the child's qualified dividends on Form 8814, line 2b. But don't include this amount on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. Instead, include the amount from Form 8814, line 9, on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. (The amount on Form 8814, line 9, may be less than the amount on Form 8814, line 2b, because lines 7 through 12 of the form divide the $2,100 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other interest and dividend income, reducing each of those amounts.)

Capital gain distributions. Enter on Form 8814, line 3, any capital gain distributions your child received. The amount of these distributions that is added to your income must be reported on Schedule D (Form 1040), line 13, or, if you aren't required to file Schedule D, on Form 1040, line 13, or Form 1040NR, line 14. You don't include it on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR.

Include the amount from Form 8814, line 10, on Schedule D, line 13; Form 1040, line 13; or Form 1040NR, line 14, whichever applies. (The amount on Form 8814, line 10, may be less than the amount on Form 8814, line 3, because lines 7 through 12 of the form divide the $2,100 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other interest and dividend income, reducing each of those amounts.)

Collectibles (28% rate) gain. If any of the child's capital gain distributions are reported on Form 1099-DIV as collectibles (28% rate) gain, you must determine how much to also include on line 4 of the 28% Rate Gain Worksheet, in the instructions for Schedule D, line 18. Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. The numerator is the part of the child's total capital gain distribution that is collectibles (28% rate) gain. The denominator is the child's total capital gain distribution. Enter the result on line 4 of the 28% Rate Gain Worksheet.

Unrecaptured section 1250 gain. If any of the child's capital gain distributions are reported on Form 1099-DIV as unrecaptured section 1250 gain, you must determine how much to include on line 11 of the Unrecaptured Section 1250 Gain Worksheet in the instructions for Schedule D, line 19. Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. The numerator is the part of the child's total capital gain distribution that is unrecaptured section 1250 gain. The denominator is the child's total capital gain distribution. Enter the result on the Unrecaptured Section 1250 Gain Worksheet, line 11.

Section 1202 gain. If any of the child's capital gain distributions are reported as section 1202 gain (gain on qualified small business stock) on Form 1099-DIV, part or all of that gain may be eligible for the section 1202 exclusion. (For information about the exclusion, see chapter 4 of Pub. 550.) To figure that part, multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. The numerator is the part of the child's total capital gain distribution that is section 1202 gain. The denominator is the child's total capital gain distribution. Your section 1202 exclusion is generally 50% of the result, but may be subject to a limit. In some cases, the exclusion is more than 50%. See the instructions for Schedule D for details and information on how to report the exclusion amount.

Example. Fred is 6 years old. In 2016, he received dividend income of $2,300, which included $1,725 of ordinary dividends and a $575 capital gain distribution from a mutual fund. (None of the distributions were reported on Form 1099-DIV as unrecaptured section 1250 gain, section 1202 gain, or collectibles (28% rate) gain.) All of the ordinary dividends are qualified dividends. He has no other income and isn't subject to backup withholding. No estimated tax payments were made under his name and social security number.

Fred's parents elect to include Fred's income on their tax return instead of filing a return for him.

They figure the amount to report on Form 1040, lines 9a and 9b, the amount to report on their Schedule D, line 13, and the amount to report on Form 1040, line 21, as follows.

They leave lines 1a and 1b of Form 8814 blank because Fred doesn't have any interest income. They enter his ordinary dividends of $1,725 on lines 2a and 2b because all of Fred's ordinary dividends are qualified dividends. They enter the amount of Fred's capital gain distributions, $575, on line 3. Next, they add the amounts on lines 1a, 2a, and 3 and enter the result, $2,300, on line 4.

They subtract the base amount on line 5, $2,100, from the amount on line 4, $2,300, and enter the result, $200, on line 6. This is the total amount from Form 8814 to be reported on their return. Next, they figure how much of this amount is qualified dividends and how much is capital gain distributions.

Figuring Additional Tax

Use Form 8814, Part II, to figure the tax on the $2,100 of your child's interest and dividends that you don't include in your income. This tax is added to the tax figured on your income.

This additional tax is the smaller of:

Tax for Certain Children Who Have Unearned Income

If a child's interest, dividends, and other unearned income total more than $2,100, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. If the parent doesn't or can't choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Attach the completed form to the child's Form 1040, Form 1040A, or Form 1040NR.

When Form 8615 must be filed. Form 8615 must be filed for a child if all of the following statements are true.

Certain January 1 birthdays. Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed.

 --------------------------------------------------------

On Form 8615, lines A and B, enter the parent's name and social security number. (If the parents filed a joint return, enter the name and social security number listed first on the joint return.) On line C, check the box for the parent's filing status.

See Which Parent's Return To Use, earlier, for information on which parent's return information must be used on Form 8615.

Parent with different tax year. If the parent and the child don't 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.

Example. Kimberly must use her mother's tax and taxable income to complete her Form 8615 for calendar year 2016 (January 1 - December 31). Kimberly's mother files her tax return on a fiscal year basis (July 1 - June 30). Kimberly must use the information on her mother's return for the tax year ending June 30, 2016, to complete her 2016 Form 8615.

Parent's return information not known timely. If the information needed from the parent's return isn't known by the time the child's return is due (usually April 15), you can file the return using estimates.

You can use any reasonable estimate. This includes using information from last year's return. If you use an estimated amount on Form 8615, enter "Estimated" on the line next to the amount.

When you get the correct information, file an amended return on Form 1040X, Amended U.S. Individual Income Tax Return.

Extension of time to file. 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.S. Individual Income Tax Return. See the instructions for Form 4868 for details.

CAUTION: An extension of time to file isn't an extension of time to pay. You must make an accurate estimate of the tax for 2016. If you don't pay the full amount due by the regular due date, the child will owe interest and may also be charged penalties. See Form 4868 and its instructions.

Parent's return information not available. If a child can't get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the Internal Revenue Service (IRS).

How to request. After the end of the tax year, send a signed, written request for the information to the Internal Revenue Service Center where the parent's return will be filed. (The IRS can't process a request received before the end of the tax year.)

TIP: You should also consider getting an extension of time to file the child's return, because there may be a delay in getting the requested information.

The request must contain all of the following.

Step 1. 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. To do that, use Form 8615, Part I.

Line 1 (Unearned Income)

If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Adjusted gross income is shown on Form 1040A, line 22; or Form 1040NR, line 37. Form 1040EZ and Form 1040NR-EZ can't be used if Form 8615 must be filed.

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.

However, use the following worksheet if the child:

Nontaxable income. For this purpose, unearned income includes only amounts the child must include in gross income. Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, isn't included.

Capital loss. A child's capital losses are taken into account in figuring the child's unearned income. Capital losses are first applied against capital gains. If the capital losses are more than the capital gains, the difference (up to $3,000) is subtracted from the child's interest, dividends, and other unearned income. Any difference over $3,000 is carried to the next year.

Income from property received as a gift. A child's unearned income includes all income produced by property belonging to the child. 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.

A child's unearned income includes income produced by property given as a gift to the child. This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act.

Example. Amanda Black, age 13, received the following income.

Amanda's unearned income is $2,300. This is the total of the dividends ($1,000), taxable interest ($1,200), and capital gains reduced by capital losses ($300 - $200 = $100). Her wages are earned (not unearned) income because they are received for work actually performed. Her tax-exempt interest isn't included because it is nontaxable.

Trust income. 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.

However, taxable distributions from a qualified disability trust are considered earned income for the purposes of completing Form 8615. See the Form 8615 instructions for details.

Adjustment to income. In figuring the amount to enter on line 1, the child's unearned income is reduced by any penalty on the early withdrawal of savings.

Line 2 (Deductions)

If the child doesn't itemize deductions on Schedule A (Form 1040 or Form 1040NR), enter $2,100 on line 2.

If the child itemizes deductions, enter on line 2 the larger of:

These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). Only the amount greater than 2% of the child's adjusted gross income can be deducted. See Pub. 529, Miscellaneous Deductions, for more information.

Example 1. 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%-of-adjusted-gross-income limit) that are directly connected with his unearned income. His adjusted gross income is $8,000, which is entered on Form 8615, line 1. Roger enters $2,100 on line 2 because that is more than the total of $1,050 plus his directly connected itemized deductions of $300.

Example 2. Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. She has no other income. She has itemized deductions of $1,200 (net of the 2%-of-adjusted-gross-income limit) that are directly connected with the production of her unearned income. Her adjusted gross income, entered on line 1, is $15,900 ($16,000 - $100). The amount on line 2 is $2,250. This is the larger of:

Subtract line 2 from line 1 and enter the result on this line. If zero or less, don't complete the rest of the form. However, you must still attach Form 8615 to the child's tax return. Figure the tax on the child's taxable income in the normal manner.

Line 4 (Child's Taxable Income)

Enter on line 4 the child's taxable income from Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 41.

Child files Form 2555 or 2555-EZ. If the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) is used to figure the child's tax. Enter the amount from line 3 of the Foreign Earned Income Tax Worksheet as the child's taxable income on Form 8615, line 4.

Line 5 (Net Unearned Income)

A child's net unearned income can't be more than his or her taxable income. Enter on Form 8615, line 5, the smaller of line 3 or line 4. This is the child's net unearned income.

If zero or less, don't complete the rest of the form. However, you must still attach Form 8615 to the child's tax return. Figure the tax on the child's taxable income in the normal manner.

Step 2. Figuring a 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. 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.

When figuring the tentative tax at the parent's tax rate on Form 8615, don't refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. For example, don't refigure the medical expense deduction.

Figure the tentative tax on Form 8615, lines 6 through 13.

Line 6 (Parent's Taxable Income)

Enter on line 6 the amount from the parent's Form 1040, line 43; Form 1040EZ, line 6; Form 1040NR, line 41; or Form 1040NR-EZ, line 14. If the parent's taxable income is zero or less, enter zero on line 6.

Parent files Form 2555 or 2555-EZ. If the parent files 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the Foreign Earned Income Tax Worksheet in the Form 1040 instructions is used to figure the parent's tax. Enter the amount from line 3 of the Foreign Earned Income Tax Worksheet as the parent's taxable income, on line 6 of Form 8615.

Line 7 (Net Unearned Income of Other Children)

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. Don't include the amount from line 5 of the Form 8615 being completed. (The term "other child" means any other child whose Form 8615 uses the tax information of the parent identified on Lines A and B of Form 8615.)

Example. Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. The children's net unearned income amounts on line 5 of their Forms 8615 are:

Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000).

Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600).

Other children's information not available. If the net unearned income of the other children isn't available when the return is due, either file the return using estimates or get an extension of time to file. Estimates and extensions are discussed earlier under Providing Parental Information (Form 8615, Lines A-C).

Line 8 (Parent's Taxable Income Plus Children's Net Unearned Income)

Enter on this line the total of lines 5, 6, and 7. You must determine the amount of net capital gain and qualified dividends included on this line before completing Form 8615, line 9.

Net capital gain. Net capital gain is the smaller of the gain, if any, on Schedule D (Form 1040), line 15, or the gain, if any, on Schedule D, line 16. If Schedule D isn't required, it is the amount on Form 1040A, line 10; or Form 1040NR, line 14.

Qualified dividends. Qualified dividends are those dividends reported on line 9b of Form 1040A, or line 10b of Form 1040NR.

Net capital gain and qualified dividends on line 8. If neither the child, nor the parent, nor any other child has net capital gain, the net capital gain on line 8 is zero.

If neither the child, nor the parent, nor any other child has qualified dividends, the amount of qualified dividends on line 8 is zero.

If the child, parent, or any other child has net capital gain, figure the amount of net capital gain included on line 8 by adding together the net capital gain amounts included on lines 5, 6, and 7 of Form 8615.

If the child, parent, or any other child has qualified dividends, figure the amount of qualified dividends included on line 8 by adding together the qualified dividend amounts included on lines 5, 6, and 7.

Use the instructions for Form 8615, line 8, including the appropriate Line 5 Worksheet, to find these amounts. See the instructions for Form 8615 for more details.

Note. The amount of any net capital gain or qualified dividends isn't separately reported on line 8. It is needed, however, when figuring the tax on line 9.

Line 9 (Tax on Parent's Taxable Income Plus Children's Net Unearned Income)

Figure the tax on the amount on line 8 using the Tax Table, the Tax Computation Worksheet, the Qualified Dividends and Capital Gain Tax Worksheet (in the Form 1040, 1040A, or 1040NR instructions), the Schedule D Tax Worksheet (in the Schedule D instructions), or Schedule J (Form 1040), as follows.

Using the Schedule D Tax Worksheet for line 9 tax. Use the Schedule D Tax Worksheet (in the Schedule D instructions) to figure the line 9 tax on Form 8615 if the child, parent, or any other child has unrecaptured section 1250 gain or 28% rate gain. If you must use the Schedule D Tax Worksheet, first complete any Schedule D and any actual Schedule D Tax Worksheet required for the child, parent, or any other child. Then figure the line 9 tax using another Schedule D Tax Worksheet. (Don't attach this Schedule D Tax Worksheet to the child's return.)

Complete this Schedule D Tax Worksheet as follows.

Figuring 28% rate gain (line 11). If the child, parent, or any other child has 28% rate gain, figure the amount of 28% rate gain included in the net capital gain on Form 8615, line 8 using the following worksheet.

          Worksheet 1 for Line 11 of the Schedule D

            Worksheet 2 for Line 11 of the Schedule D

Complete this worksheet Schedule J as follows.

Line 10 (Parent's Tax)

Enter on line 10 the amount from the parent's Form 1040, line 44; Form 1040A, line 28 (minus any alternative minimum tax); Form 1040EZ, line 10; Form 1040NR, line 42; or Form 1040NR-EZ, line 15. Don't include the tax, if any, from Form 8814 or any tax from recapture of an education credit.

If the parent files 2555-EZ, enter the amount from line 4 of the parent's Foreign Earned Income Tax Worksheet (in the Form 1040 instructions), instead of the parent's tax from Form 1040, line 44.

Line 11 (Tentative Tax)

Subtract line 10 from line 9 and enter the result on this line. This is the tentative tax.

If line 7 is blank, skip lines 12a and 12b and enter the amount from line 11 on line 13. Also skip the discussion for lines 12a and 12b that follows.

Lines 12a and 12b (Dividing the Tentative Tax)

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. This is done on lines 12a, 12b, and 13. Add the amount on line 7 to the amount on line 5 and enter the total on line 12a. Divide the amount on line 5 by the amount on line 12a and enter the result, as a decimal, on line 12b.

Example. In the earlier example under Line 7 (Net Unearned Income of Other Children), Sharon's Form 8615 shows $1,600 on line 7. The amount entered on line 12a is $2,400, the total of the amounts on lines 5 and 7 ($800 + $1,600). The decimal on line 12b is .333, figured as follows and rounded to three places.

     $800

Step 3. 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:

Line 14 (Child's Taxable Income in Excess of Net Unearned Income)

If lines 4 and 5 of Form 8615 are the same, the child's taxable income isn't more than the child's net unearned income. Enter zero on lines 14 and 15, and go to line 16. Also skip the rest of this discussion and the discussion for line 15 that follows.

If lines 4 and 5 aren't the same, subtract line 5 from line 4 and enter the result on line 14. Then, before completing line 15, you must determine the amount of net capital gain and qualified dividends, if any, included on line 14.

Net capital gain and qualified dividends on line 14. If the child doesn't have any net capital gain or qualified dividends, the amount of the net capital gain and qualified dividends included on line 14 is zero.

If the child has net capital gain, the amount of net capital gain included on line 14 is the amount from line 2 of the child's completed Line 5 Worksheet minus the amount from the last line of that worksheet. (See the earlier discussion for line 8 of Form 8615.)

If the child has qualified dividends, the amount of qualified dividends included on line 14 is the amount from line 1 of the child's completed Line 5 Worksheet minus the amount from the next to the last line of that worksheet. (See the earlier discussion of line 8 of Form 8615.)

Line 15 (Tax on Child's Taxable Income in Excess of Net Unearned Income)

Figure the tax on the amount on line 14 using the Tax Table, the Tax Computation Worksheet, the Qualified Dividends and Capital Gain Tax Worksheet, the Schedule D Tax Worksheet, or Schedule J (Form 1040), as follows.

Using the Schedule D Tax Worksheet for line 15 tax. Use the Schedule D Tax Worksheet (in the Schedule D instructions) to figure the line 15 tax on Form 8615 if the child has unrecaptured section 1250 gain or 28% rate gain. Don't attach this Schedule D Tax Worksheet to the child's return.

Complete this Schedule D Tax Worksheet as follows.

Using Schedule J for line 15 tax. If Schedule J applies, use it as a worksheet to figure the tax to enter on Form 8615, line 15. On line 1 of this worksheet, enter the amount from Form 8615, line 14. Complete lines 2a through 23 following the Schedule J instructions. Use the child's filing status to complete lines 4, 8, 12, and 16.

Enter the amount from line 23 of this worksheet Schedule J, on Form 8615, line 15, and check the box on that line. Don't attach this worksheet to the child's return.

Line 16 (Combined Tax)

Add lines 13 and 15 and enter the total on line 16. This is the child's tax figured at the parent's rate on net unearned income and the child's rate on other income.

Line 17 (Tax at Child's Rate)

Figure the tax on the amount on line 4. Use the Tax Table, the Tax Computation Worksheet, the Qualified Dividends and Capital Gain Tax Worksheet, the Schedule D Tax Worksheet, or the child's actual Schedule J (Form 1040), whichever applies. Enter the tax amount on line 17. If it is from the Qualified Dividends and Capital Gain Tax Worksheet, the Schedule D Tax Worksheet, or Schedule J, check the box on that line.

Child files Form 2555 or 2555-EZ. If the child files Form 2555 or 2555-EZ and has a net capital gain or qualified dividends, figure the tax using the Qualified Dividends and Capital Gain Tax Worksheet or the Schedule D Tax Worksheet, whichever applies. To fill out that worksheet, follow the instructions in the footnote to the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions).

Line 18 (Tax)

Enter on line 18 the larger of line 16 or line 17. Also enter this amount on the child's Form 1040A, line 28; or Form 1040NR, line 42. This is the child's tax.

Child files Form 2555 or 2555-EZ. If the child files 2555-EZ, don't enter the amount from Form 8615, line 18, on the child's Form 1040, line 44. Instead, enter the amount from Form 8615, line 18, on line 4 of the child's Foreign Earned Income Tax Worksheet. Then complete the rest of the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) to figure the child's tax.

Alternative Minimum Tax

A child may be subject to alternative minimum tax (AMT) if he or she has certain items given preferential treatment under the tax law. These items include accelerated depreciation and certain tax-exempt interest income. The AMT may also apply if the child has passive activity losses or certain distributions from estates or trusts.

For more information on who is liable for AMT and how to figure it, see Form 6251.

Limit on exemption amount (AMT). Ordinarily, single individuals can subtract a $53,900 exemption amount from their AMT taxable income. However, a child who files Form 8615 has a limited exemption amount. The child's exemption amount for 2016 is limited to the child's earned income plus $7,400. Figure the child's allowable exemption amount on the worksheet in the instructions for Form 6251, line 29.

Glossary

Adjusted gross income. Gross income (defined later) minus adjustments to income (defined next).

Adjustments to income. Deductions that are subtracted from gross income in figuring adjusted gross income. They include deductions for moving expenses, alimony paid, a penalty on early withdrawal of savings, and contributions to an individual retirement arrangement (IRA). Adjustments to income can be taken even if itemized deductions (defined later) aren't claimed.

Alternative minimum tax. A tax designed to collect at least a minimum amount of tax from taxpayers who benefit from the tax laws that give special treatment to certain kinds of income and allow deductions and credits for certain kinds of expenses.

Capital gain distribution. An allocated amount paid to, or treated as paid to, a shareholder by a mutual fund, regulated investment company, or real estate investment trust from its net realized long-term capital gains. This amount is in addition to any ordinary dividend paid to the shareholder. You will receive a statement from the payer if this applies to you.

Dependent. A person, other than the taxpayer or the taxpayer's spouse, for whom an exemption (defined later) can be claimed. To be your dependent, a person must be your qualifying child or qualifying relative (both defined later). For more information, see Exemptions for Dependents in Pub. 501.

Earned income. Salaries, wages, tips, professional fees, and other amounts received as pay for work actually performed.

For purposes of determining a dependent's standard deduction, earned income also includes any part of a scholarship or fellowship grant that the dependent must include in his or her gross income.

For purposes of completing Form 8615, earned income also includes a taxable distribution from a qualified disability trust. It doesn't include unearned income as defined earlier, under Line 1 (Unearned Income).

Exemption. An amount ($4,050 for 2016) that can be subtracted from income in figuring how much income will be taxed. Exemptions generally are allowed for the taxpayer, the taxpayer's spouse, and dependents.

Full-time student. 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. A school includes a technical, trade, or mechanical school. It doesn't include an on-the-job training course, correspondence school, or school offering courses only through the Internet.

Gross income. All income from all sources that isn't exempt from tax and must be included on your tax return. Gross income is the total of your earned and unearned income.

For purposes of determining whether you must file a return, gross income includes gain from the sale of your main home (even if you can exclude part or all of it) and includes income earned outside the United States (even if you can exclude part or all of it).

Itemized deductions. Deductions allowed on Schedule A (Form 1040) for medical and dental expenses, taxes, home mortgage interest and investment interest, charitable contributions, casualty and theft losses, and miscellaneous deductions. They are subtracted from adjusted gross income in figuring taxable income. Itemized deductions can't be claimed if the standard deduction is chosen.

Net capital gain. The excess of net long-term capital gain over any net short-term capital loss. For 2016, this is the smaller of the gain on line 15 or the gain on line 16 of Schedule D (Form 1040). If Schedule D (Form 1040) isn't required, net capital gain is the amount of capital gain distributions on Form 1040A, line 10; or Form 1040NR, line 14.

Net unearned income. The total of all unearned income (other than tax-exempt income) reduced by the sum of:

Qualifying child. To be your dependent (defined earlier), a person must be either your qualifying child or your qualifying relative (defined next). Generally, a person is your qualifying child if that person:

Qualifying relative. To be your dependent (defined earlier), a person must be either your qualifying child (defined earlier) or your qualifying relative. Generally, a person is your qualifying relative if that person:

Standard deduction. An amount that can be subtracted from adjusted gross income in figuring taxable income. The standard deduction isn't used if itemized deductions are claimed.

Support. All amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. To figure your child's support, count support provided by you, your child, and others. However, a scholarship received by your child isn't considered support if your child is a full-time student. See Pub. 501 for details.

Tax year. The time period covered by a tax return. Usually this is January 1 to December 31, a calendar year, but taxpayers can elect a fiscal tax year with different beginning and ending dates.

Taxable income. Gross income minus any adjustments to income, any allowable exemptions, and either itemized deductions or the standard deduction.

Unearned income. Income other than earned income. This is investment-type income and includes interest, dividends, and capital gains (including capital gain distributions), rents, royalties, etc. Distributions of interest, dividends, capital gains, and other unearned income from a trust are also unearned income to a beneficiary of the trust. However, for purposes of completing Form 8615, a taxable distribution from a qualified disability trust is considered earned income.

Unrecaptured section 1250 gain. Generally, any part of your net capital gain from selling section 1250 property (real property) that is due to depreciation. For details, see Pub. 550.

28% rate gain. Gain from the sale of collectibles and, generally, the taxable part of your gain from the sale of qualified small business stock held more than 5 years. For details, see the instructions for Schedule D (Form 1040).

How To Get Tax Help

If you have questions about a tax issue, need help preparing your tax return, or want to download free publications, forms, or instructions, go to IRS.gov and find resources that can help you right away.

Preparing and filing your tax return. Find free options to prepare and file your return on IRS.gov or in your local community if you qualify.

The Volunteer Income Tax Assistance (VITA) program offers free tax help to people who generally make $54,000 or less, persons with disabilities, the elderly, and limited-English-speaking taxpayers who need help preparing their own tax returns. The Tax Counseling for the Elderly (TCE) program offers free tax help for all taxpayers, particularly those who are 60 years of age and older. TCE volunteers specialize in answering questions about pensions and retirement-related issues unique to seniors.

You can go to IRS.gov and click on the Filing tab to see your options for preparing and filing your return which include the following.

Using direct deposit. The fastest way to receive a tax refund is to combine direct deposit and IRS e-file. Direct deposit securely and electronically transfers your refund directly into your financial account. Eight in 10 taxpayers use direct deposit to receive their refund. IRS issues more than 90% of refunds in less than 21 days.

Delayed refund for returns claiming certain credits. Due to changes in the law, the IRS can't issue refunds before February 15, 2017, for returns that claim the earned income credit (EIC) or the additional child tax credit (ACTC). This applies to the entire refund, not just the portion associated with these credits.

Getting a transcript or copy of a return. The quickest way to get a copy of your tax transcript is to go to IRS.gov/transcripts. Click on either "Get Transcript Online" or "Get Transcript by Mail" to order a copy of your transcript. If you prefer, you can:

Understanding an IRS notice or letter. Go to IRS.gov/notices to find additional information about responding to an IRS notice or letter.

Contacting your local IRS office. Keep in mind, many questions can be resolved on IRS.gov without visiting an IRS Tax Assistance Center (TAC). Go to IRS.gov/letushelp for the topics people ask about most. If you still need help, IRS TACs provide tax help when a tax issue can't be handled online or by phone. All TACs now provide service by appointment so you'll know in advance that you can get the service you need without waiting. Before you visit, go to IRS.gov/taclocator to find the nearest TAC, check hours, available services, and appointment options. Or, on the IRS2Go app, under the Stay Connected tab, choose the Contact Us option and click on "Local Offices."

Watching IRS videos. The IRS Video portal (IRSvideos.gov) contains video and audio presentations for individuals, small businesses, and tax professionals.

Getting tax information in other languages. For taxpayers whose native language isn't English, we have the following resources available. Taxpayers can find information on IRS.gov in the following languages.

The Taxpayer Advocate Service Is Here To Help You

What is the Taxpayer Advocate Service?

The Taxpayer Advocate Service (TAS) is an independent organization within the IRS that helps taxpayers and protects taxpayer rights. Our job is to ensure that every taxpayer is treated fairly and that you know and understand your rights under the Taxpayer Bill of Rights.

What Can the Taxpayer Advocate Service Do For You?

We can help you resolve problems that you can't resolve with the IRS. And our service is free. If you qualify for our assistance, you will be assigned to one advocate who will work with you throughout the process and will do everything possible to resolve your issue. TAS can help you if:

We have offices in every state, the District of Columbia, and Puerto Rico. Your local advocate's number is in your local directory and at taxpayeradvocate.irs.gov. You can also call us at 1-877-777-4778.

How Can You Learn About Your Taxpayer Rights?

The Taxpayer Bill of Rights describes 10 basic rights that all taxpayers have when dealing with the IRS. Our Tax Toolkit at taxpayeradvocate.irs.gov can help you understand what these rights mean to you and how they apply. These are your rights. Know them. Use them.

How Else Does the Taxpayer Advocate Service Help Taxpayers?

TAS works to resolve large-scale problems that affect many taxpayers. If you know of one of these broad issues, please report it to us at IRS.gov/sams.

Low Income Taxpayer Clinics

Low Income Taxpayer Clinics (LITCs) serve individuals whose income is below a certain level and need to resolve tax problems such as audits, appeals, and tax collection disputes. Some clinics can provide information about taxpayer rights and responsibilities in different languages for individuals who speak English as a second language. To find a clinic near you, visit IRS.gov/litc or see IRS Publication 4134, Low Income Taxpayer Clinic List.