Kiddie tax question

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Topic Author
GreendaleCC
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Kiddie tax question

Post by GreendaleCC »

I'm working on taxes for a minor with no earned income.

$200 Ordinary Dividends + STCG
$2,000 LTCG
AGI: $2,200

Standard deduction: $1,100
Taxable income: $1,100

In Form 8615 Schedule D Tax Worksheet, Turbotax is calculating a federal tax of $100+. Why aren't more LTCGs being treated with a 0% rate? What am I missing? TIA!


https://www.bogleheads.org/wiki/Kiddie_ ... ed_income
If the children have no earned income then:

The child (if a dependent) gets a Standard Deduction of $1,100
This has the effect of:
The first $1,100 of unearned income is untaxed
The next $1,100 is taxed at the child's rate
0% for qualified dividend (QDI) and long term capital gain (LTCG)
10% for Interest and non-QDI
Anything beyond that is taxed at the parents' tax rate
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FiveK
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Re: Kiddie tax question

Post by FiveK »

Why are you going past line 3 of Form 8615?
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abuss368
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Re: Kiddie tax question

Post by abuss368 »

GreendaleCC wrote: Sat May 08, 2021 1:56 pm I'm working on taxes for a minor with no earned income.

$200 Ordinary Dividends + STCG
$2,000 LTCG
AGI: $2,200

Standard deduction: $1,100
Taxable income: $1,100

In Form 8615 Schedule D Tax Worksheet, Turbotax is calculating a federal tax of $100+. Why aren't more LTCGs being treated with a 0% rate? What am I missing? TIA!


https://www.bogleheads.org/wiki/Kiddie_ ... ed_income
If the children have no earned income then:

The child (if a dependent) gets a Standard Deduction of $1,100
This has the effect of:
The first $1,100 of unearned income is untaxed
The next $1,100 is taxed at the child's rate
0% for qualified dividend (QDI) and long term capital gain (LTCG)
10% for Interest and non-QDI
Anything beyond that is taxed at the parents' tax rate
Based on information provided not sure. Perhaps taxed at parents tax rate.

Tony
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Topic Author
GreendaleCC
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Re: Kiddie tax question

Post by GreendaleCC »

FiveK wrote: Sat May 08, 2021 5:12 pm Why are you going past line 3 of Form 8615?
Good question, you got me, I tried to simplify my question to my own detriment. The total unearned income is actually $2199.97, but because of how the individual components are rounded up by the tax forms, Turbotax is calculating total unearned income as $2,201.

At $2,200, TT calculates $0 tax. At $2,201, TT applies the 10% tax rate on the $1,101 beyond the $1,100 standard deduction. So long, 0% LTCG. This is before any info regarding the parents' tax situation is even entered.
MarkNYC
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Re: Kiddie tax question

Post by MarkNYC »

GreendaleCC wrote: Mon May 10, 2021 8:23 pm
FiveK wrote: Sat May 08, 2021 5:12 pm Why are you going past line 3 of Form 8615?
Good question, you got me, I tried to simplify my question to my own detriment. The total unearned income is actually $2199.97, but because of how the individual components are rounded up by the tax forms, Turbotax is calculating total unearned income as $2,201.

At $2,200, TT calculates $0 tax. At $2,201, TT applies the 10% tax rate on the $1,101 beyond the $1,100 standard deduction. So long, 0% LTCG. This is before any info regarding the parents' tax situation is even entered.
At $2,200 of unearned income, Kiddie Tax Form 8615 does not apply and the child's tax is properly zero.

At $2,201 of unearned income, Form 8615 is required - TT cannot correctly calculate the child's tax without it. If you enter the parent's tax information onto Form 8615, TT will correctly calculate the child's tax to also be zero on $2,201 of unearned income.

All required tax forms and schedules should be completed before trying to determine the accuracy of the tax calculation.
Last edited by MarkNYC on Mon May 10, 2021 9:53 pm, edited 1 time in total.
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FiveK
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Re: Kiddie tax question

Post by FiveK »

GreendaleCC wrote: Mon May 10, 2021 8:23 pm At $2,200, TT calculates $0 tax. At $2,201, TT applies the 10% tax rate on the $1,101 beyond the $1,100 standard deduction. So long, 0% LTCG.
Can't explain why the LTCG are being taxed. Can you work back in TT to see how it is filling out the Qualified Dividends and Capital Gain Tax Worksheet (or the Schedule D Tax Worksheet if that applies)?
Topic Author
GreendaleCC
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Re: Kiddie tax question

Post by GreendaleCC »

MarkNYC wrote: Mon May 10, 2021 9:33 pm
GreendaleCC wrote: Mon May 10, 2021 8:23 pm
FiveK wrote: Sat May 08, 2021 5:12 pm Why are you going past line 3 of Form 8615?
Good question, you got me, I tried to simplify my question to my own detriment. The total unearned income is actually $2199.97, but because of how the individual components are rounded up by the tax forms, Turbotax is calculating total unearned income as $2,201.

At $2,200, TT calculates $0 tax. At $2,201, TT applies the 10% tax rate on the $1,101 beyond the $1,100 standard deduction. So long, 0% LTCG. This is before any info regarding the parents' tax situation is even entered.
At $2,200 of unearned income, Kiddie Tax Form 8615 does not apply and the child's tax is properly zero.

At $2,201 of unearned income, Form 8615 is required - TT cannot correctly calculate the child's tax without it. If you enter the parent's tax information onto Form 8615, TT will correctly calculate the child's tax to also be zero on $2,201 of unearned income.

All required tax forms and schedules should be completed before trying to determine the accuracy of the tax calculation.
Thanks, this gave me some hope. However, after completing Form 8615 with parent info and sibling's 8615 info, it's still computing the same amount of tax. Error check is not turning any outstanding items.
Topic Author
GreendaleCC
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Re: Kiddie tax question

Post by GreendaleCC »

FiveK wrote: Mon May 10, 2021 9:43 pm
GreendaleCC wrote: Mon May 10, 2021 8:23 pm At $2,200, TT calculates $0 tax. At $2,201, TT applies the 10% tax rate on the $1,101 beyond the $1,100 standard deduction. So long, 0% LTCG.
Can't explain why the LTCG are being taxed. Can you work back in TT to see how it is filling out the Qualified Dividends and Capital Gain Tax Worksheet (or the Schedule D Tax Worksheet if that applies)?
It seems Form 8615 Schedule D Tax Worksheet is taking the LTCG from Schedule D, reducing it by the qualified dividends, and then applying the tax table to that number.
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FiveK
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Re: Kiddie tax question

Post by FiveK »

GreendaleCC wrote: Tue May 11, 2021 2:06 pm
FiveK wrote: Mon May 10, 2021 9:43 pm
GreendaleCC wrote: Mon May 10, 2021 8:23 pm At $2,200, TT calculates $0 tax. At $2,201, TT applies the 10% tax rate on the $1,101 beyond the $1,100 standard deduction. So long, 0% LTCG.
Can't explain why the LTCG are being taxed. Can you work back in TT to see how it is filling out the Qualified Dividends and Capital Gain Tax Worksheet (or the Schedule D Tax Worksheet if that applies)?
It seems Form 8615 Schedule D Tax Worksheet is taking the LTCG from Schedule D, reducing it by the qualified dividends, and then applying the tax table to that number.
It's somewhat unusual for anyone, let alone a child, to be using the Schedule D Tax Worksheet instead of the Qualified Dividends and Capital Gain Tax Worksheet but assuming it applies here, can you list the line item values you see? E.g.,
Line1 $1100
Lines2-6 $0
Line7 $1999
Etc.
MarkNYC
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Re: Kiddie tax question

Post by MarkNYC »

GreendaleCC wrote: Tue May 11, 2021 1:35 pm
MarkNYC wrote: Mon May 10, 2021 9:33 pm
GreendaleCC wrote: Mon May 10, 2021 8:23 pm
FiveK wrote: Sat May 08, 2021 5:12 pm Why are you going past line 3 of Form 8615?
Good question, you got me, I tried to simplify my question to my own detriment. The total unearned income is actually $2199.97, but because of how the individual components are rounded up by the tax forms, Turbotax is calculating total unearned income as $2,201.

At $2,200, TT calculates $0 tax. At $2,201, TT applies the 10% tax rate on the $1,101 beyond the $1,100 standard deduction. So long, 0% LTCG. This is before any info regarding the parents' tax situation is even entered.
At $2,200 of unearned income, Kiddie Tax Form 8615 does not apply and the child's tax is properly zero.

At $2,201 of unearned income, Form 8615 is required - TT cannot correctly calculate the child's tax without it. If you enter the parent's tax information onto Form 8615, TT will correctly calculate the child's tax to also be zero on $2,201 of unearned income.

All required tax forms and schedules should be completed before trying to determine the accuracy of the tax calculation.
Thanks, this gave me some hope. However, after completing Form 8615 with parent info and sibling's 8615 info, it's still computing the same amount of tax. Error check is not turning any outstanding items.
Form 8615 can get more complicated when siblings are involved. I suggest you try one, or both, of the following.

1. Go through each line of Form 8615. If you come to a line that seems to have an incorrect amount, see if that provides a clue as to a possible input error.

2. Remove the sibling's information. If the child's tax stays the same, that suggests an error in the parent's tax information. If the tax goes to zero, that suggests an error in the input of the sibling's information.
Topic Author
GreendaleCC
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Re: Kiddie tax question

Post by GreendaleCC »

FiveK wrote: Tue May 11, 2021 2:31 pm
GreendaleCC wrote: Tue May 11, 2021 2:06 pm
FiveK wrote: Mon May 10, 2021 9:43 pm
GreendaleCC wrote: Mon May 10, 2021 8:23 pm At $2,200, TT calculates $0 tax. At $2,201, TT applies the 10% tax rate on the $1,101 beyond the $1,100 standard deduction. So long, 0% LTCG.
Can't explain why the LTCG are being taxed. Can you work back in TT to see how it is filling out the Qualified Dividends and Capital Gain Tax Worksheet (or the Schedule D Tax Worksheet if that applies)?
It seems Form 8615 Schedule D Tax Worksheet is taking the LTCG from Schedule D, reducing it by the qualified dividends, and then applying the tax table to that number.
It's somewhat unusual for anyone, let alone a child, to be using the Schedule D Tax Worksheet instead of the Qualified Dividends and Capital Gain Tax Worksheet but assuming it applies here, can you list the line item values you see? E.g.,
Line1 $1100
Lines2-6 $0
Line7 $1999
Etc.
FiveK, thanks, this was helpful. I'm getting closer to solving this.

After combing through the 8615 instructions, I was pointed to Line 20 of Schedule D, which - in TurboTax - indicates I am to use the Qualified Dividends and Capital Gain Tax Worksheet. However, somewhere along the way TT is diverting this return to the Schedule D Tax Worksheet...
thrillhou
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Re: Kiddie tax question

Post by thrillhou »

To the OP, what if you calculate the child's taxes as if they're filing their own return? (They'd still be a dependent)

Somewhere I once read that there can be a tax liability difference when adding a child to your taxes -- sort of a convince fee. Not sure if that's 100% correct or not.
Topic Author
GreendaleCC
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Re: Kiddie tax question

Post by GreendaleCC »

thrillhou wrote: Sat May 15, 2021 5:53 pm To the OP, what if you calculate the child's taxes as if they're filing their own return? (They'd still be a dependent)

Somewhere I once read that there can be a tax liability difference when adding a child to your taxes -- sort of a convince fee. Not sure if that's 100% correct or not.
This is the child's own return :happy
Topic Author
GreendaleCC
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Re: Kiddie tax question

Post by GreendaleCC »

To make a long story short, Pub 929 outlines when to use the various tax calculation methods referenced in 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.

If line 14 doesn’t include any net capital gain or qualified dividends, use the Tax Table or Tax Computation Worksheet (or Schedule J, if applicable) to figure this tax.

If line 14 includes any net capital gain or qualified dividends, use the Qualified Dividends and Capital Gain Tax Worksheet to figure this tax. For details, see the instructions for Form 8615, line 15.

However, if the child has 28% rate gain or unrecaptured section 1250 gain, use the Schedule D Tax Worksheet. (But use Schedule J instead, if it applies.)
There are no 28% rate gain or uncaptured section 1250 gains involved in either the child's or parents' return (Schedule D, Lines 18 & 19). However, TT is forcing the use of the Schedule D Tax Worksheet.

In contrast to the Schedule D Tax Worksheet's $100+ tax, the return's Qualified Dividends and Capital Gain Tax Worksheet calculates a $0 tax liability (Line 25) for the $1,101 income.

Unfortunately, the child has no farming or fishing income, so Schedule J is out.

FiveK, thanks again for pointing me in the right direction to dig into this!
thrillhou
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Re: Kiddie tax question

Post by thrillhou »

GreendaleCC wrote: Sat May 15, 2021 7:14 pm To make a long story short, Pub 929 outlines when to use the various tax calculation methods referenced in 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.

If line 14 doesn’t include any net capital gain or qualified dividends, use the Tax Table or Tax Computation Worksheet (or Schedule J, if applicable) to figure this tax.

If line 14 includes any net capital gain or qualified dividends, use the Qualified Dividends and Capital Gain Tax Worksheet to figure this tax. For details, see the instructions for Form 8615, line 15.

However, if the child has 28% rate gain or unrecaptured section 1250 gain, use the Schedule D Tax Worksheet. (But use Schedule J instead, if it applies.)
There are no 28% rate gain or uncaptured section 1250 gains involved in either the child's or parents' return (Schedule D, Lines 18 & 19). However, TT is forcing the use of the Schedule D Tax Worksheet.

In contrast to the Schedule D Tax Worksheet's $100+ tax, the return's Qualified Dividends and Capital Gain Tax Worksheet calculates a $0 tax liability (Line 25) for the $1,101 income.

Unfortunately, the child has no farming or fishing income, so Schedule J is out.

FiveK, thanks again for pointing me in the right direction to dig into this!
I followed the link to the instructions / Pub 929. At the top it writes, "When Form 8615 must be filed. Your child must file Form 8615 if all of the following are true.
Their unearned income was more than $2,200.
etc etc..."
There's even a flow chart.

Based on your first post, the unearned income is not more than $2,200. So, you don't need form 8615. (That's how I read it.)
Could you file the taxes 'by hand' using the blank IRS forms? (... I wouldn't want to do this either...)
MathMaven
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Re: Kiddie tax question

Post by MathMaven »

You can use Free File Fillable Forms to file the child's return electronically. This avoids any issues with Turbo Tax, and eliminates filling out paper forms manually. Access is through the IRS.gov site. Go to the tab for those with income too high to qualify for any commercial "free file" programs.
Topic Author
GreendaleCC
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Re: Kiddie tax question

Post by GreendaleCC »

thrillhou wrote: Sat May 15, 2021 7:26 pm
GreendaleCC wrote: Sat May 15, 2021 7:14 pm To make a long story short, Pub 929 outlines when to use the various tax calculation methods referenced in 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.

If line 14 doesn’t include any net capital gain or qualified dividends, use the Tax Table or Tax Computation Worksheet (or Schedule J, if applicable) to figure this tax.

If line 14 includes any net capital gain or qualified dividends, use the Qualified Dividends and Capital Gain Tax Worksheet to figure this tax. For details, see the instructions for Form 8615, line 15.

However, if the child has 28% rate gain or unrecaptured section 1250 gain, use the Schedule D Tax Worksheet. (But use Schedule J instead, if it applies.)
There are no 28% rate gain or uncaptured section 1250 gains involved in either the child's or parents' return (Schedule D, Lines 18 & 19). However, TT is forcing the use of the Schedule D Tax Worksheet.

In contrast to the Schedule D Tax Worksheet's $100+ tax, the return's Qualified Dividends and Capital Gain Tax Worksheet calculates a $0 tax liability (Line 25) for the $1,101 income.

Unfortunately, the child has no farming or fishing income, so Schedule J is out.

FiveK, thanks again for pointing me in the right direction to dig into this!
I followed the link to the instructions / Pub 929. At the top it writes, "When Form 8615 must be filed. Your child must file Form 8615 if all of the following are true.
Their unearned income was more than $2,200.
etc etc..."
There's even a flow chart.

Based on your first post, the unearned income is not more than $2,200. So, you don't need form 8615. (That's how I read it.)
Could you file the taxes 'by hand' using the blank IRS forms? (... I wouldn't want to do this either...)
The tax forms round individual components up so that they total $2,201.
Topic Author
GreendaleCC
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Re: Kiddie tax question

Post by GreendaleCC »

MathMaven wrote: Sat May 15, 2021 7:43 pm You can use Free File Fillable Forms to file the child's return electronically. This avoids any issues with Turbo Tax, and eliminates filling out paper forms manually. Access is through the IRS.gov site. Go to the tab for those with income too high to qualify for any commercial "free file" programs.
Thanks for the suggestion! There is also the override function in TT to add the correct number
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