Special tax rules may apply to some children who receive investment income. The rules may affect the amount of tax and how to report the income. Here are five key points to keep in mind if your child has investment income:
1. Investment Income. Investment income generally includes interest, dividends and capital gains. It also includes other unearned income, such as from a trust.
2. Parent’s Tax Rate. If your child’s total investment income is more than $2,000 then your tax rate may apply to part of that income instead of your child’s tax rate.
3. Parent’s Return. You may be able to include your child’s investment income on your tax return if it was less than $10,000 for the year. If you make this choice, then your child will not have to file his or her own return.
4. Child’s Return. If your child’s investment income was $10,000 or more in 2014 then the child must file their own return.
5. Net Investment Income Tax. Your child may be subject to the Net Investment Income Tax if they must file Form 8615.