The kiddie tax is applicable when the investment income of children reaches a certain minimum. You can include the income of your child on your own return if his or her income comes from interest, capital gains, or dividends, and only if the income is between $750 and $7,500. If this is not the case, you can file a separate tax return for your child.

Reporting on Your Own Return

Reporting your child’s income on your personal tax return may involve paying more taxes yourself. This is because to calculate your personal adjusted gross income (AGI), you will have to cover your child’s income along with yours. A higher AGI results in a loss or reduction of your multiple tax benefits.

If any tax has been withheld from your child’s income or if any estimate has been made as to his or her tax payments during the year, it is no longer possible for you to report your child’s income on your own return.

If you still report your child’s income despite the above conditions, you will not have the privilege to claim the following deductions for your child:

· Greater standard deduction (if your child is blind)

· Deduction for early savings withdrawal penalty

· Other deductions such as for investment expenses and charitable donations

Child Under 14

For children below 14 years old, all income above $1,500 is taxed at their parents’ rate. If you

opt for this condition, you will have to complete Form 8814—Parents' Election to Report Child's Interest and Dividends—for each child, and then attach it to your return. This process is usually very time-consuming.

For Married Parents

If you are a married person and both you and your partner file separately, whoever has the higher income is the one who must report all of the children’s income along with his or her own return. If the parents cohabit, although they are not married, then the one with the higher income has to report.

For Divorced or Separated Parents

In cases where the parents are legally separated or divorced, the one who has had longer custody of the child should report. If the parent with custody of the child has remarried and he or she files separately with his or her new partner, the one with the greater income is required to include their child’s income.