Last Updated : January 14, 2009
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8814

Form 8814

Parent’s Election to Report Child’s Interest And Dividends

Purpose of the Form:
Form 8814 is used to report the taxpayer’s child’s interest and dividend income on the parent’s return.

You can make this election if your child meets all of the following conditions:

  • The child was born after January 1, 1989.A child born on January 1, 1989 is considered to be of age 18 years at the end of 2006.
  • The child’s only income was from interest and dividends, including capital gain distributions and Alaska Permanent Fund Dividends.
  • The child’s gross income for 2006 was less than $8500.
  • The child is required to file a 2006 return.
  • The child does not file a Joint return for 2006.
  • There were no estimated tax payments for the child for 2006 (including any overpayment of tax from his or her 2005 return applied to 2006 estimated tax).
  • There was no federal income tax withheld from the child’s income.

For parents to Qualify to make the election below conditions need to be satisfied. They are:

  • It is compulsory to file Form 1040 OR Form 1040NR.
  • You are filing a Joint return for 2006 with the Child’s other parent.
  • You and the child’s other parent were married to each other but file separate returns for 2006 and you had the higher taxable income.
  • You were unmarried, treated as unmarried for federal income tax purposes or separated from the child’s other parent by a divorce or separate maintenance decree.
  • If you were a custodial parent and you remarried, you can make the election on a joint return with your new spouse. If you and your new spouse do not file a joint return, you qualify to make the election only if you had higher taxable income than your new spouse.

Tax Benefits you cannot take:
If you elect to report your child’s income on your return, you cannot take any of the following deductions that your child could take on his or her own return.

  • Standard deduction of $2100 for a blind child.
  • Penalty on early withdrawal of child’s savings.
  • Itemized deductions such as child’s investment expenses or charitable contributions.

If your child received qualified dividends or capital Gain distributions, you may pay up to $42.50 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 $850 and $1700 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 5% because of the preferential tax rates for qualified dividends and capital gain distributions. See IRS instructions for more information.

Foreign Accounts and Trusts:
If the child has any foreign accounts or trusts, then you must complete Part –III of schedule B for the child. If the answer to either question is “Yes”, you must enter “Form 8814” next to line 7a or line 8 whichever applies, and you must file this Schedule B with the parent’s return.

Caution:
Check the appropriate checkbox if the parent who qualifies to make the election is Taxpayer, Spouse or they jointly claim the child’s income.

Description:
 Enter the name of the state in Abbreviated form if you are preparing a Part-Year resident state return for the parents. Otherwise keep it blank.
 
Line A:
Enter the child’s first name and last name on this line.

Line B:
Enter the child’s social security number.

Line C:
File a separate copy of Form 8814 for each child whose income you want to report on the parent’s return.
If you are attaching more than one copy of the form then check the checkbox on line C.

Child’s Taxable Interest Smart Worksheet (line 1a):
 This worksheet helps you determine the amount to report on Line 1a.

  • On line A enter manually all interest received by your child.
  • On line B enter manually Tax-Exempt interest received by your child.
  • On line C enter manually Nominee interest Distribution received by your child.
  • On line D row-1 enter manually Non Taxable accrued interest distribution received by the child.
  • On line D row-2 enter manually Non Taxable ABP adjustment received by your child.
  • On line D row-3 enter manually Non Taxable OID adjustment received by your child.

 

PART- I: CHILD’S INTEREST AND DIVIDEND TO REPORT ON YOUR RETURN:

Line 1a:
This line is automatically calculated in our package. Once you have entered all taxable interest income received by the child and also all adjustments to interest as a positive number during the year in smart worksheet the package will subtract the adjustment part from the total interest received and final amount is shown on this line.

Line1b:
This line is automatically calculated in our package. Here value of tax exempt interest entered on line B of smart worksheet is reported on this line.
Note: If line 1b includes Tax exempt interest or exempt interest dividends paid by a regulated investment company from private activity bonds see instructions for Alternative Minimum Tax.

Line 2a:
Enter on this line the ordinary dividends received by your child in 2006. Also include ordinary dividends your child received through a partnership, an S corporation, or an Estate or Trust.
If your child received, as a nominee, ordinary dividends that actually belong to another person enter on this line only.
Do not include nominee dividend distributions, Qualified dividends, Alaska permanent Fund dividends on this line.
Ordinary dividends are carried to line 9a of Form 1040 pg-1.

Line 2b:
Enter all qualified dividends your child received in 2006. Qualified dividends are the ordinary dividends that are eligible for the same lower tax rate as a net capital gain.
Qualified dividends are carried to line 9b of Form 1040 pg-1.

Line 2c:
Enter the amount of dividends that are Alaska Permanent Fund Dividends that are not reported on line 2a.This amount is necessary for the calculation of Earned Income Credit.

Line 2d:
Enter the Nominee Dividend distribution on this line which is not reported on line 2a. Nominee dividends are deducted in the line 2 result since the nominee dividends are not taxed on the child.

Line 2 total:
This line is automatically calculated in our package. here addition of line 2a and line 2c is done and from the result nominee distribution dividend is subtracted to get net ordinary Dividends.

Line 3a:
Enter the capital gain distributions received by your child in 2006.Donot include amount received as a nominee in the total for line 3a.

Line 3b:
Enter on this line child’s nominee capital gain distributions.

Line 3c:
Enter on this line Unrecaptured section 1250 gains reported by real estate investments trusts or mutual funds. This value is then carried to schedule D wkst -2 unrecaptured sections 1250 gain worksheet.

Line 3d:
Enter on this line the capital Gain distributions that are taxable at the 28% tax rate .This value is then carried to schedule D wkst-28% rate gain worksheet.

Line 3 total:

This line is automatically calculated in our package. This line shows total capital gain distributions less any nominee capital gain distributions.

Line 4:
This line is automatically calculated in our package. This line is an addition of lines 1a,2 and 3.If the total is $8500 or more then the child must file a separate return, Form 8814 cannot be used. If the total is $1700 or less, go to line 7.

Line 5:
This line is fixed as $1700 as this is basic exemption limit for 2006 Tax Year.

Line 6:
This line is automatically calculated in our package. Here line 5 is subtracted from line 4 and result is entered here. If you checked the box on line C , add the amounts from line 12 of all your Forms 8814.Unless the exception below applies, include this amount in the total on Line 21 of Form 1040 or Form 1040 Line 21 whichever applies. you must also enter  “FORM 8814” and the total  of line 12 amounts in the space next to Line 21 .

Exception: If your child received qualified dividends or capital Gain distributions, part or all of that income must be reported on your Form 1040 or Form 1040NR instead of line 6 of form 8814. See pub.929 for details.

Line 7:
This line is automatically calculated in our package. Here Line 2b is divided by line 4and result is entered here.

Line 8:
This line is automatically calculated in our package. Here Line 3 total  is divided by line 4 and result is entered here.

Line 9:
This line is automatically calculated in our package. Here line 6 is multiplied by line 7 and result is entered here. If you are filing schedule B this amount is transferred to Schedule B, line 5. On the grid statement be sure to report this amount in BOTH the ordinary dividends column and the Qualified Dividends column and the payer name should be entered as Form 8814. If schedule B is not filed then report this amount on line 9a and Line 9b of Form 1040 or Form 1040NR Line 10a and line 10b.

Line 10:
This line is automatically calculated in our package. Here line 6 is multiplied by line 8 and result is entered here. If schedule D is filed then this amount should be carried to schedule D line 13. Else this amount is to be reported on Form 1040 Line 13 Or Form 1040NR line 14.

Line 11:
This line is automatically calculated in our package. This line is addition of Line 9 and Line 10 of this form 8814.

Line 12:
This line is automatically calculated in our package. Here line 11 is subtracted from line 6 and result is entered here. If you checked the box on line C, add the amounts from Line 12 of all of your Forms 8814. This amount is included on form 1040 line 21 or Form 1040Nr line 21 whichever applies.

PART- II: TAX ON FIRST $1700 OF CHILDS INTEREST AND DIVIDENDS.

Line 13:
This Line amount is fixed in our package as $850 & this amount refers to the amount not taxed for tax year 2006.

Line 14:
This line is automatically calculated in our package. Here line 13 is subtracted from line 4 and result is entered here.

Line 15:
This line is automatically calculated in our package. Here if line 14 amount is less than $850 then amount from line 14 is multiplied by 10% , and result is entered here and Yes checkbox on line 15 is checked by the package itself. But if line 14 is greater than $850 then maximum amount allowable is $ 85 for tax year 2006 and $85 is entered on this line. Also checkbox NO on line 15 is checked by the package itself.

If checkbox on line C is checked for Use of multiple Form 8814 , add the amounts from line 15 of all your forms 8814 and report the total on Form 1040 line 44 OR Form 1040NR Line 41 whichever applies.

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