How I Learned About the Kiddie Tax

The form 1040 instructions say the above too (for form 8615).... - 1040 Instr., page 36

That seems logically wrong, but I guess it's time to look up the tax in the IRC and see what the law actually says about its computation.

The IRC actually refers to it as "net unearned income." The IRS pubs and form instructions call it investment income. The definition is in Sec. 1(g)(4).

Just by coincidence, I saw 1099-SSA for a 12-yr old dependent today (survivor benefits), I wonder if such unearned income could trigger the kiddie tax... (too late to research it tonight). Suppose the recipient had enough other income to push SS into the taxable column, etc.

-Mark Bole

Taxable SSA benefits are included in the definition of net unearned income.

Speaking of the kiddie tax, why are forms 4972 and 8814 treated differently on line 35 of form 6251. I can't help thinking that following the instructions means that if you are using form 8814, and subject to the AMT, you don't pay any tax on the second 900 dollars of the child's income. Am I missing something?

To me, "investment income" is not equivalent to "net unearned income" (but is a subset). They are not equivalent terms.

If I were a lay-person, seeing "investment income" as the term used in the instructions, I would not consider government benefits (unemployment or SSRB), lottery winnings, a state tax refund, etc. to be included. (OK, so minors can't gamble, but they can inherit someone else's winnings.)

The 4972 tax removal from Line 35 on the 6251 normalizes the regular tax to the tentative minimum tax as the lump sum pension income is not in AMTI.

The tentative minimum tax includes the tax on the child's investment income that exceeds $1800 as the excess is on Line 21 and in AMTI.

The regular tax on the 1040 includes the tax on the child's investment income in excess of $900 up to a maximum of $900. The tentative minimum tax would not include any tax on any of the child's investment income in excess of $900 up to a maximum amount of $900.

So.. if your tentative minimum tax is higher than the adjusted regular tax, you have AMT. As the AMT is higher than the regular tax which includes the tax on that excess $900, what does it matter that AMTI didn't have that portion of the child's income? You're still paying more tax.

First, the relevant law does not mention investment income. Using the word, "investment," is a screw up that can be laid at the door of the Internal Revenue Service.

Second, the kiddie tax can apply to individuals who are old enough to gamble legally.

Okay. Three cases

1. Consider someone filing with Head of Household status, 4 unmarried dependent children, with 119975 of earned income, no other income, no above the line deductions, not itemizing, no foreign tax credit. AGI is 119975, taxable income is 97025, and on F1040 line 44 is 19319. TAMT is 19667, so line 45 is 8. and line 46 is 19667.

1. Same facts, but in addition, each of the kids has 1500 of interest income. Using forms 8814 for each of the kids, line 44 is now

19559. TAMT is still 19667, so line 45 is now 108, and line 46 is 19667.

1. Same facts as 2, but instead of using for 8814 for the kids, each files his/her own tax return. Parent's tax is still 19667 [see case

1]. Each kid also pays 61 of tax on their return.

Am I missing something?

I don't know where you are going with this or why. First you asked why is the 4972 treated differently than the 8814. Then you asked for confirmation that if you are subject to AMT you don't appear to be paying tax on the excess $900. Those questions were answered.

If you are now asking whether a taxpayer who is subject to AMT can save his family money by adding his children's investment income (interest) to his own tax return over the children filing their own returns.... then the answer is yes in your scenario.