Reporting a Child's Income on Child's Return

If your child is required to file a tax return, we recommend that you have him or her file a separate return on Form 1040-EZ, 1040A, or 1040.

If the child is under 14 at all times during the year and investment income of more than $1,600 in 2005, he or she will have to complete Form 8615, Tax for Children Under Age 14 With Investment Income of More Than $1,600, and attach it to their individual return. In that case, Form 1040-EZ can't be used.

The purpose of the Form 8615 is to impose the "kiddie tax" -- that is, to make sure that a child's unearned income is taxed at the parents' top marginal tax rate, for all children under 14. Therefore, you will have to complete your own tax return before the child's can be finished, since you will need to enter the amount of your AGI and the amount of your income tax on the Form 8615. If the parents are filing separately, use the return of the parent with higher income.

If you have more than one child with investment income over $1,600, you'll have to complete the tax returns for all the children as part of the same process, since you need figures from all of the other children's Forms 8615 in order to complete each child's return.

Planning Tools You can download Form 8615, Form 1040 and Form 1040A to aid in your financial planning.

If you or any of your children had capital gains income, these returns can become very complicated. The IRS provides examples, worksheets and instructions for computing the correct amount of tax in its free Publication 929, Tax Rules for Children and Dependents. You may find it easier to report your children's income on your own return as described above than to follow the IRS's instructions, however.

Warning If your minor child can't file a tax return by himself or herself (as is usually the case), a parent or guardian must complete it and pay the tax. If the child cannot sign the return, the parent should sign the child's name, and then write, "By (parent's signature), parent (guardian) for minor child." If you sign the return in this way, you can deal with the IRS in all matters on behalf of the child. If you don't sign the return, you may have to file Form 2848, Power of Attorney and Declaration of Representative, if you need to deal with the IRS beyond merely filing the return.