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Penalty for underpayment of estimated tax. If you make this election for 2021 and didn’t have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. If you plan to make this election for 2022, you may need to increase your fed- eral income tax withholding or your estimated tax pay- ments to avoid the penalty. See Pub. 505 for more infor- mation. Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Only the amount over $2,200 is added to your income. The amount over $2,200 is shown on Form 8814, line 6. Unless the child's income includes qualified dividends or capital gain distri- butions (discussed next), the same amount is shown on Form 8814, line 12. Include the amount from Form 8814, line 12, on Schedule 1 (Form 1040), line 8z. If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Schedule 1 (Form 1040), line 8z. On the dotted line next to Schedule 1 (Form 1040), line 8z, enter “Form 8814” and the total of the Form 8814, line 12, amounts. Note. The tax on the first $2,200 is figured on Form 8814, Part II. See Figuring Additional Tax, later. Qualified dividends. Enter on Form 8814, line 2a, any ordinary dividends your child received. This amount may include qualified dividends. Qualified dividends are those dividends reported on Form 1040, 1040-SR, or 1040-NR, line 3a, and are eligible for lower tax rates that apply to a net capital gain. For detailed information about qualified dividends, see Pub. 550. If your child received qualified dividends, the amount of these dividends that is added to your income must be re- ported on Form 1040, 1040-SR, or 1040-NR, line 3a. You don’t include these dividends on Form 8814, line 12; or Schedule 1 (Form 1040), line 8z. Enter the child's qualified dividends on Form 8814, line 2b. But don’t include this amount on Form 1040, 1040-SR, or 1040-NR, line 3a. Instead, include the amount from Form 8814, line 9, on Form 1040, 1040-SR, or 1040-NR, line 3a. (The amount on Form 8814, line 9, may be less than the amount on Form 8814, line 2b, be- cause lines 7 through 12 of the form divide the $2,200 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other in- terest and dividend income, reducing each of those amounts.) Capital gain distributions. Enter on Form 8814, line 3, any capital gain distributions your child received. The amount of these distributions that is added to your income must be reported on Schedule D (Form 1040), Capital Gains and Losses, line 13, or, if you aren’t required to file Schedule D, on Form 1040, 1040-SR, or 1040-NR, line 7. You don’t include it on Form 8814, line 12; or Schedule 1 (Form 1040), line 8z. Include the amount from Form 8814, line 10, on Sched- ule D, line 13; and Form 1040, 1040-SR, or 1040-NR, line 7, whichever applies. (The amount on Form 8814, line 10, may be less than the amount on Form 8814, line 3, because lines 7 through 12 of the form divide the $2,200 base amount on Form 8814, line 5, between the child's qualified dividends, capital gain distributions, and other interest and dividend income, reducing each of those amounts.) Collectibles (28% rate) gain. If any of the child's capital gain distributions are reported on Form 1099-DIV as collectibles (28% rate) gain, you must determine how much to also include on line 4 of the 28% Rate Gain Worksheet in the instructions for Schedule D, line 18. Mul- tiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. The numerator is the part of the child's total capital gain distribution that is col- lectibles (28% rate) gain. The denominator is the child's total capital gain distribution. Enter the result on line 4 of the 28% Rate Gain Worksheet. Unrecaptured section 1250 gain. If any of the child's capital gain distributions are reported on Form 1099-DIV as unrecaptured section 1250 gain, you must determine how much to include on line 11 of the Unrecaptured Sec- tion 1250 Gain Worksheet in the instructions for Sched- ule D, line 19. Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. The numer- ator is the part of the child's total capital gain distribution that is unrecaptured section 1250 gain. The denominator is the child's total capital gain distribution. Enter the result on the Unrecaptured Section 1250 Gain Worksheet, line 11. Section 1202 gain. If any of the child's capital gain distributions are reported as section 1202 gain (gain on qualified small business stock) on Form 1099-DIV, part or all of that gain may be eligible for the section 1202 exclu- sion. (For information about the exclusion, see chapter 4 of Pub. 550.) To figure that part, multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. The numerator is the part of the child's total capi- tal gain distribution that is section 1202 gain. The denomi- nator is the child's total capital gain distribution. Your sec- tion 1202 exclusion is generally 50% of the result, but may be subject to a limit. In some cases, the exclusion is more than 50%. See the Instructions for Schedule D for details and information on how to report the exclusion amount. Example. Fred is 6 years old. In 2021, he received dividend income of $2,300, which included $1,725 of ordi- nary dividends and a $575 capital gain distribution from a mutual fund. (None of the distributions were reported on Form 1099-DIV as unrecaptured section 1250 gain, sec- tion 1202 gain, or collectibles (28% rate) gain.) All of the ordinary dividends are qualified dividends. He has no other income and isn’t subject to backup withholding. No estimated tax payments were made under his name and SSN. Fred's parents elect to include Fred's income on their tax return instead of filing a return for him. They figure the amount to report on Form 1040, lines 3a and 3b, the amount to report on their Schedule D, Page 12 Publication 929 (2021)