Form 8814 — Parent's Election to Report Child's Interest and Dividends

Form 8814 (Parent's Election to Report Child's Interest and Dividends) allows a parent to include a qualifying child's unearned income — specifically interest, ordinary dividends, and capital gain distributions — on the parent's own Form 1040 or 1040-SR. This election, authorized under IRC §1(g)(7), eliminates the need to file a separate return for the child.

The election is a convenience mechanism. It simplifies family tax compliance when a child has modest investment income, but it comes with trade-offs: it increases the parent's adjusted gross income (AGI), may raise the parent's tax liability, and causes the child to forfeit certain deductions.

Governing authority: IRC §1(g)(7); IRS Instructions for Form 8814

To make the Form 8814 election for tax year 2025 (filed in 2026), all of the following conditions must be met:

1. Age test — The child was under age 19 at the end of the tax year, or under age 24 if a full-time student for at least five months during the year.

1. Income type — The child's gross income consisted only of interest and dividends, including ordinary dividends, qualified dividends, capital gain distributions, and Alaska Permanent Fund dividends. Excludes wages, salaries, self-employment income, rental income, royalties, and any other earned income.

1. Income amount — The child's gross income was less than $13,500 (2025 threshold; indexed annually for inflation).

1. No estimated tax payments — No estimated tax payments were made in the child's name or SSN for the tax year, and no overpayment from a prior year was applied to the child's current-year estimated tax.

1. No backup withholding — No federal income tax was withheld from the child's income (backup withholding under IRC §3406).

1. Filing requirement — The child is required to file a return only because gross income exceeds the filing threshold (i.e., the child has no other filing obligation such as self-employment tax, AMT, or tax on early distributions).

1. Relationship — The child must be your child (biological, adopted, or stepchild).

1. Joint return — If married filing jointly, the child must be a qualifying child of either spouse.

If any condition is not met, the child must file their own return (Form 1040) with Form 8615 (Tax for Certain Children Who Have Unearned Income) if applicable.

Key takeaway: The direct tax on the child's income is often similar under both methods. The critical difference is the AGI impact on the parent's return when using Form 8814.

Advantages of the Form 8814 Election:

• Simplified filing — no separate return for the child; reduces paperwork and preparation costs
• No estimated tax management for the child — avoids the need to manage quarterly payments
• Reduced filing fees — one fewer return to prepare (relevant for clients paying per-return)
• Easier record-keeping for the family

Disadvantages of the Form 8814 Election:

• Increases parent's AGI — the amount over $1,350 is added to the parent's AGI, which can:
• Reduce or eliminate education credits (AOTC, LLC)
• Reduce or eliminate the Child Tax Credit
• Trigger or increase the Net Investment Income Tax (3.8% under IRC §1411)
• Affect premium tax credit (ACA marketplace subsidies)
• Reduce itemized deduction benefits (medical expenses, charitable)
• Impact financial aid calculations (FAFSA uses parent AGI)
• Child loses certain deductions (see next section)
• May increase state taxes — states that conform to federal AGI will also see higher state taxable income
• Qualified dividends may lose preferential rate — when added to the parent's return, the parent's total qualified dividend income may push them into a higher capital gains bracket

When a parent makes the Form 8814 election, the child forfeits the following:

1. Additional standard deduction for blindness — The child does not separately claim an additional standard deduction for blindness because no separate return is filed. The parent reports the income on their return.
2. Penalty on early withdrawal of savings — The child does not claim the deduction separately; any allowable penalty may be reflected on the parent’s return.
3. Investment interest expense —The child does not separately deduct the expense under IRC §163(d); eligible amounts may still be deductible at the parent level, subject to limitations.
4. Itemized deductions — any deductions the child would otherwise claim (e.g., charitable contributions, state/local taxes on investment income) cannot be claimed because the income is reported on the Parent's return.
5. Net investment income tax exemption — The child’s separate NIIT threshold does not apply; the income is included in the parent’s NIIT calculation and subject to the parent’s thresholds.

1. Using Form 8814 when the child has earned income — if the child has any wages, salaries, or self-employment income, Form 8814 cannot be used, even if the child also has interest/dividends

1. Exceeding the income limit — the child's gross income must be less than $13,500 (2025). If it equals or exceeds $13,500, the child must file their own return with Form 8615

1. Ignoring the AGI impact — failing to model the downstream effects on parent's credits, deductions, and NIIT before making the election

1. Not comparing both methods — always compute the family's total tax liability under both scenarios (Form 8814 vs. separate child return with Form 8615) before deciding

1. Using Form 8814 when estimated payments were made — if any estimated tax payments were made for the child, the election is invalid

1. Using Form 8814 when backup withholding occurred — if any federal tax was withheld from the child's income, the child must file their own return to claim the withholding as a credit

1. Forgetting state tax implications — many states conform to federal AGI; the increased AGI may increase state tax liability

1. Filing Form 8814 for a foster child — foster children do not qualify; only biological, adopted, or stepchildren are eligible

1. Not filing a separate Form 8814 for each child — if reporting income for multiple children, each child requires their own Form 8814

• Form 8814 — Parents' Election to Report Child's Interest and Dividends
• Form 8615 — Tax for Certain Children Who Have Unearned Income
• Form 1040 — U.S. Individual Income Tax Return
• Form 1099-INT — Interest Income
• Form 1099-DIV — Dividends and Distributions
• Form 1099-OID — Original Issue Discount
• IRC §1(g) — Tax on unearned income of certain children (kiddie tax)
• IRC §1(g)(7) — Parent's election to include child's income
• IRS Publication 929 — Tax Rules for Children and Dependents
• IRS Instructions for Form 8814: https://www.irs.gov/forms-pubs/about-form-8814