With the recent question of the kiddie tax, I recently had an inquiry
from a student who comes under the kiddie tax.
The glitch is that his parents are Canadian, and have no US source
income. I told him that on Form 8615, line 6, he should report his
parents as having zero income.
Did I get that right? Or did I miss something.
A similar question came up recently in another forum. The
other issue that was raised there is what to enter for the
foreign parent's Social Security number if they have neither
an SSN nor an ITIN, and have no need for one.
It appears that the IRS never considered the possibility of
a U.S. citizen or resident alien subject to kiddie tax whose
parents are foreign and have no connection with the U.S. tax
system. There doesn't seem to be any guidance on how to
The conclusion in the other forum was to enter zero for the
parent's income, as you recommended, and to write "NRA" in
the space for the parent's Social Security number (like you
would for an NRA spouse on an MFS return). I don't think
it's possible to e-file the return without a parent's SSN on
Form 8615, It has to be paper filed.
I think this is a bit more complicated because the kiddie tax does not
work as has been assumed. Let us first assume that we have a child who
is potentially (has unearned income in excess of the threshold) subject
to the kiddie tax. First we must see if the child has a filing
requirement. As the child is not a dependent of a US taxpayer, I believe
the filing requirement is that of a single person under the age of 65
rather than the filing requirement for a dependent. Let us now assume
that the taxable gross income exceeds the "single person" filing
threshold. Let us also assume that after deducting the personal
exemption and the standard deduction the child is left with taxable
income of $2000. The Kiddie tax rule says that the child pays the
greater of the tax using the normal tax rules or the tax he would pay
after reducing his taxable income by the amount of the unearned income
plus the allocable parental tax. In my example, the unearned income
wipes out the $2000 of taxable income and only the allocable parental
tax applies. Allocable parental tax is defined as the difference between
what the parents would pay if the child's unearned income was added to
the parents income over their actual tax. In this instance the actual
parental tax is zero but the first part of the formula creates taxable
US income for the NRA as it says you add the child's income (which is US
source income) to the parent's taxable income. Technically, if you
follow the rule, your NRA parents have US source income not effectively
connected to a US trade or business (page 4 of the 1040NR). You would
then use the tax treaty to see how each component of the income is taxed.
So, as you can see the parent's tax under the normal set of rules is
zero but after you add the child's US income to an NRA tax return, you
wind up with a tax liability that may or may not be higher than what the
child would pay on his own return.
I have no idea as to whether this is what one is supposed to do when you
have a child who is a US taxpayer without parents who are US taxpayers.
I have never come up against this. Maybe you are not supposed to follow
the code section that says you add the child's income to the parent's
return and recalculate to come up with the allocable parental tax.
Maybe, you are supposed to assume that you do add the child's income but
you do not consider it to be US source income. If you do read the code
section and apply it as written, the NRA parent's would have a tax
liability that you would compare to the child's liability.
From my perspective, as the child is not a dependent and is filing his
own US tax return as a single person using deductions and the personal
exemption, I suppose you could just avoid the whole issue of the 8615
based on an assumption that Code section 1(g) is only applicable to US
persons (child and parents).
No. Being able to be claimed as a dependent is not one of
the considerations for whether Form 8615 is required. The 5
conditions that have to be met for Form 8615 to be required
are listed under "When Form 8615 must be filed" at the
following link. None of them says anything about whether the
child can be claimed as a dependent.