Page 11

child’s interest and dividend income on their return. For other situations when the parents do not file a joint return, see Parents Who Don't File a Joint Return next. Parents Who Don’t File a Joint Return For parents who don’t file a joint return and are electing to report the child’s interest and dividend income on their re- turn, the following discussions explain which parent's tax return must be used to figure the tax. Only the parent whose tax return is used can make the election described earlier under Parents' Election To Re- port Child's Interest and Dividends. Parents are married. If the child's parents file separate returns, use the return of the parent with the greater taxa- ble income. Parents not living together. If the child's parents are married to each other but not living together, and the pa- rent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial pa- rent. If the custodial parent isn’t considered unmarried, use the return of the parent with the greater taxable in- come. For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in Pub. 501. Parents are divorced. If the child's parents are divorced or legally separated, and the parent who had custody of the child for the greater part of the year (the custodial pa- rent) hasn’t remarried, use the return of the custodial pa- rent. Custodial parent remarried. If the custodial parent has remarried, the stepparent (rather than the noncusto- dial parent) is treated as the child's other parent. There- fore, if the custodial parent and the stepparent file a joint return, use that joint return. Don’t use the return of the noncustodial parent. If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. Parents never married. If a child's parents have never been married to each other, but lived together all year, use the return of the parent with the greater taxable income. If the parents didn’t live together all year, the rules explained earlier under Parents are divorced apply. Widowed parent remarried. If a widow or widower re- marries, the new spouse is treated as the child's other pa- rent. The rules explained earlier under Custodial parent remarried apply. Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. Rate may be higher. If your child received qualified divi- dends or capital gain distributions, you may pay up to $110 more tax if you make this election instead of filing a separate tax return for the child. This is because the tax rate on the child's income between $1,100 and $2,200 is 10% if you make this election. However, if you file a sepa- rate return for the child, the tax rate may be as low as 0% because of the preferential tax rates for qualified divi- dends and capital gain distributions. Deductions you can’t take. By making the Form 8814 election, you can’t take any of the following deductions that the child would be entitled to on his or her return. • The additional standard deduction if the child is blind. • The deduction for a penalty on an early withdrawal of your child's savings. • Itemized deductions (such as your child's investment interest expenses or charitable contributions). Deductible investment interest. If you use Form 8814, your child's unearned income is considered your un- earned income. To figure the limit on your deductible in- vestment interest, add the child's unearned income to yours. However, if your child received qualified dividends, capital gain distributions, or Alaska Permanent Fund divi- dends, see chapter 3 of Pub. 550 for information about how to figure the limit. AMT. If your child received tax-exempt interest (or ex- empt-interest dividends paid by a regulated investment company) from certain private activity bonds, you must determine if that interest is a tax preference item for AMT purposes. If it is, you must include it with your own tax preference items when figuring your AMT. See Form 6251, Alternative Minimum Tax—Individuals, and its in- structions for details. NIIT. When figuring any NIIT liability on Form 8960, Net Investment Income Tax—Individuals, Estates, and Trusts, the amount on line 12 of Form 8814 (other than Alaska Permanent Fund dividends) will increase the amount of your net investment income reported on Form 8960. See the Form 8960 instructions for more information. Reduced deductions or credits. If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return, including the follow- ing. • Deduction for contributions to a traditional IRA. • Deduction for student loan interest. • Itemized deductions for medical expenses and casu- alty and theft losses. • Credit for child and dependent care expenses. • Child tax credit. • Education tax credits. • Earned income credit. Publication 929 (2021) Page 11