A child’s tax return, the kiddie tax and the Net Investment Income Tax

Dec 7, 2014

I previously wrote about the filing obligation of dependents at Filing obligation of a 6-year-old, (child’s investment) with the key points being that:

  • A dependent would have to file with income as low as $1,000 due to a reduced standard deduction for dependents. It’s amount if all such income was unearned.
  • The regular FBAR rules still apply. For example, the child has bank accounts with an aggregate value in excess of $10,000. In this case, you will need to file a form FinCEN 114.
  • And the “kiddie tax” would still apply. It means taxing the investment income reported as being the child’s at the parent’s tax rates. It’s an extension of the assignment of income doctrine.

Under the kiddie tax rules, a parent can elect to include the child’s investment income on their own return. What is investment income? It can be interest, dividends and capital gain distributions. In most cases, it would not impact the tax due. But would simplify the tax preparation slightly in that a child’s tax return would no longer be required.

I am just writing this post to add an impact that this could have as far as the Net Investment Income tax (NIIT) is concerned. Doing so could subject the child’s investment income to the 3.8% Net Investment Income Tax. Please note however that the NIIT would only apply to filers whose total income exceeds certain levels (see below) – if an excess above the threshold exists, then investment income within that excess would be taxed at 3.8% – It may sound confusing at first, so please forgive me, but reading the previous sentence again, slowly might clarify it;)

NIIT Threatholds


U.S. Taxes For American Expats E-book

FREE U.S. Tax Guide for Americans Abroad

The only e-book about U.S. Expat Taxes you need to read! Covers

1. Foreign Tax Credit vs. Foreign Earned Income Exclusion

2. The Additional Child Tax Credit. Get a $1,400 refund!

3.  What happens if I don't file?

and more...

Thanks for requesting our free tax guide! It will be delivered to your inbox shortly.

By continuing to use the site, you agree to the use of cookies. more information

The cookie settings on this website are set to "allow cookies" to give you the best browsing experience possible. If you continue to use this website without changing your cookie settings or you click "Accept" below then you are consenting to this.