Publication 929 - Tax Rules For Children And Dependents

Line 16 (Combined Tax)

three exemptions, including an exemption for

Sara’s parents do not have a net capital gain

or any qualified dividends, so no net capital gain

Sara, on their return.

Add lines 13 and 15 and enter the total on line

or qualified dividends are on line 6 of Sara’s

Because she is under age 18 and has more

16. This is the child’s tax figured at the parent’s

Form 8615. Therefore, the amount of net capital

than $1,700 investment income, part of her in-

rate on net investment income and the child’s

gain on line 8 of Sara’s Form 8615 is $275, and

come may be subject to tax at her parents’ rate.

rate on other income.

the amount of qualified dividends on that line is

A completed Form 8615 must be attached to her

$412. John uses the Qualified Dividends and

return.

Capital Gain Tax Worksheet (in the Form 1040A

Line 17 (Tax at Child’s Rate)

Sara’s father, John, fills out Sara’s return. He

instructions) and follows the instructions under

completes her Form 1040A through line 27, then

Using the Qualified Dividends and Capital Gain

Figure the tax on line 4 (the child’s taxable in-

begins completing her Form 8615.

Tax Worksheet for line 9 tax in the Form 8615

come). Use the Tax Table, the Tax Computation

instructions to figure the tax to enter on Sara’s

John enters his name and social security

Worksheet, the Qualified Dividends and Capital

Form 8615, line 9.

number on Sara’s Form 8615 because his name

Gain Tax Worksheet, the Schedule D Tax Work-

John enters $412 on line 2 of the Qualified

and number are listed first on the joint return he

sheet, or the child’s actual Schedule J, which-

Dividends and Capital Gain Tax Worksheet, and

and Laura are filing. He checks the box for

ever applies. Enter the tax amount on line 17. If it

$275 on line 3 of that worksheet. That completed

married filing jointly.

is from the Qualified Dividends and Capital Gain

worksheet is shown later as Filled-in Qualified

Tax Worksheet, the Schedule D Tax Worksheet,

He enters Sara’s investment income,

Dividends and Capital Gain Tax Worksheet #1.

or Schedule J, check the box on that line.

$2,800, on line 1. Sara does not itemize deduc-

John enters the tax of $6,543 on Sara’s Form

tions, so John enters $1,700 on line 2. He enters

8615, line 9.

$1,100 ($2,800 − $1,700) on line 3.

He enters the tax from his and Laura’s Form

Line 18 (Tax)

1040 ($6,449) on Sara’s Form 8615, line 10,

Sara’s taxable income, as shown on her

then subtracts that amount from the $6,543 on

Form 1040A, line 27, is $2,500. This is her total

Enter on line 18 the larger of line 16 or line 17.

line 9, and enters the $94 remainder on line 11.

income ($4,350) minus her standard deduction

Also enter this amount on the child’s Form 1040,

Because line 7 is blank, John skips lines 12a

line 44; Form 1040A, line 28; or Form 1040NR,

($1,850). Her standard deduction is limited to

and 12b and enters $94 on line 13.

line 41. This is the child’s tax.

the amount of her earned income plus $300.

John subtracts line 5 ($1,100) from line 4

John enters $2,500 on line 4.

($2,500) and enters the result, $1,400, on line

Child files Form 2555 or 2555-EZ. If the child

John compares lines 3 and 4 and enters the

14. Using the instructions for line 14 earlier,

files Form 2555 or 2555-EZ, do not enter the

smaller amount, $1,100, on line 5.

John subtracts the net capital gain included on

amount from Form 8615, line 18, on the child’s

John enters $48,000 on line 6. This is the

line 5 ($275) from Sara’s net capital gain ($700)

Form 1040, line 44. Instead, enter the amount

taxable income from line 43 of John and Laura’s

to figure the $425 net capital gain included on

from Form 8615, line 18, on line 8 of the child’s

line 14. He also subtracts the qualified dividends

joint Form 1040 return. Sara is an only child, so

Foreign Earned Income Tax Worksheet (in the

included on line 5 ($412) from Sara’s qualified

line 7 is blank. He adds line 5 ($1,100), line 6

Form 1040 instructions). Then complete the rest

dividends ($1,050) to figure the $638 qualified

($48,000), and line 7 (blank) and enters $49,100

of the Foreign Earned Income Tax Worksheet.

dividends included on line 14. He uses another

on line 8.

Enter the amount from line 10 of the worksheet

Qualified Dividends and Capital Gain Tax Work-

on the child’s Form 1040, line 44.

Because Sara’s capital gain distributions

sheet and follows the instructions under Using

and qualified dividends are included on line 5,

the Qualified Dividends and Capital Gain Tax

Alternative Minimum Tax

John uses Line 5 Worksheet #1 (in the instruc-

Worksheet for line 15 tax, in the Form 8615

tions for Form 8615) to figure out that $275 net

instructions, to figure the $87 tax to enter on

A child may be subject to alternative minimum

capital gain and $412 qualified dividends are

Form 8615, line 15. That completed worksheet

tax (AMT) if he or she has certain items given

included on line 5. He completes that worksheet

is shown later as Filled-in Qualified Dividends

preferential treatment under the tax law. These

as follows.

and Capital Gain Tax Worksheet #2.

items include accelerated depreciation and cer-

John adds lines 13 and 15 of Form 8615, and

tain tax-exempt interest income. The AMT may

Line 5 Worksheet #1

enters the sum, $181, on line 16. Then he uses

also apply if the child has passive activity losses

another Qualified Dividends and Capital Gain

1. Enter the child’s qualified

or certain distributions from estates or trusts.

Tax Worksheet to figure the $164 tax on Sara’s

dividends . . . . . . . . . . . . . . . .

$1,050

For more information on who is liable for

$2,500 taxable income to enter on Form 8615,

AMT and how to figure it, get Form 6251.

2. Enter the child’s net capital gain

700

line 17. That completed worksheet is shown

later as Filled-in Qualified Dividends and Capital

3. Enter the amount from the child’s

Limit on exemption amount. Ordinarily, sin-

Gain Tax Worksheet #3.

Form 8615, line 1 . . . . . . . . . . .

2,800

gle people can subtract a $42,500 exemption

Finally, John compares lines 16 and 17 and

4. Divide line 1 by line 3. Enter the

amount from their AMT taxable income. How-

enters the larger amount, $181, on line 18 of

result as a decimal (rounded to at

ever, a child who files Form 8615 has a limited

Sara’s Form 8615. He also enters that amount

least 3 places). Do not enter more

exemption amount. The child’s exemption

on Sara’s Form 1040A, line 28.

than 1.000 . . . . . . . . . . . . . . .

.375

amount for 2006 is limited to the child’s earned

John also completes Schedule 1, Form

income plus $6,050. Figure the child’s allowable

5. Divide line 2 by line 3. Enter the

1040A (not shown) for Sara.

exemption amount on the worksheet in the in-

result as a decimal (rounded to at

least 3 places). Do not enter more

structions for Form 6251, line 29.

than 1.000 . . . . . . . . . . . . . . .

.250

Illustrated Example

6. Multiply $1,700 by line 4 . . . . . .

638

7. Multiply $1,700 by line 5 . . . . . .

425

This example shows how to fill out Forms 8615

and 1040A for Sara Brown. It also shows how to

8. Qualified dividends on Form

use the Qualified Dividends and Capital Gain

8615, line 5. Subtract line 6 from

Tax Worksheet in the Form 1040A instructions

line 1 (but do not enter less than

to figure Sara’s tax.

zero or more than the amount on

Form 8615, line 5) . . . . . . . . . .

412

John and Laura Brown have one child, Sara.

She is 13 and has $1,050 taxable interest,

9. Net capital gain on Form 8615,

$1,050 qualified dividend income, $700 capital

line 5. Subtract line 7 from line 2

gain distributions, and $1,550 earned income.

(but do not enter less than zero or

She does not itemize deductions. John and

more than the excess of Form

Laura file a joint return with John’s name and

8615, line 5, over line 8 of this

social security number listed first. They claim

worksheet) . . . . . . . . . . . . . . .

275

Page 16

Publication 929 (2006)

Publication 929 - Tax Rules For Children And Dependents - 2006 Page 16

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