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person and gifts made under the Uniform Gift to Minors Act. Example. Amanda Black, age 13, received the follow- ing income. • Dividends—$1,000. • Wages—$2,100. • Taxable interest—$1,200. • Tax-exempt interest—$100. • Capital gains—$300. • Capital losses—($200). The dividends were qualified dividends on stock given to her by her grandparents. Amanda's unearned income is $2,300. This is the total of the dividends ($1,000), taxable interest ($1,200), and capital gains reduced by capital losses ($300 − $200 = $100). Her wages are earned (not unearned) income be- cause they are received for work actually performed. Her tax-exempt interest isn’t included because it is nontaxa- ble. Trust income. If your child is the beneficiary of a trust, distributions of taxable interest, dividends, capital gains, and other unearned income from the trust are unearned income to your child. However, taxable distributions from a qualified disabil- ity trust are considered earned income for the purposes of completing Form 8615. See the Form 8615 instructions for details. Adjustment to income. In figuring the amount to en- ter on line 1, your child’s unearned income is reduced by any penalty on the early withdrawal of savings. Line 2 (Deductions) If the child doesn't itemize deductions on Schedule A (Form 1040), enter $2,200 on line 2. If the child itemizes deductions, enter on line 2 the larger of: 1. $1,100 plus the portion of the amount on Schedule A (Form 1040), line 17 (or Schedule A (Form 1040-NR), line 8), that is directly connected with the production of the unearned income on Form 8615, line 1; or 2. $2,200. Directly connected. Itemized deductions are directly connected with the production of unearned income if they are for expenses to produce or collect taxable income or to manage, conserve, or maintain property held for pro- ducing income. These expenses include custodian fees and service charges, service fees to collect taxable inter- est and dividends, and certain investment counsel fees. However, only certain directly connected expenses, such as interest and deductible amortizable bond premi- ums, are deductible in tax years 2018 through 2025. Example 1. Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 that are directly connected with his unearned income. His adjusted gross income is $8,000, which is entered on Form 1040, line 11, and on Form 8615, line 1. Roger enters $2,200 on line 2 because that is more than the total of $1,100 plus his directly con- nected itemized deductions of $300. Example 2. Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. She has no other income. She has itemized deductions of $1,200 that are directly connected with the production of her un- earned income. Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). The amount on line 2 is $2,300. This is the larger of: 1. $1,100 plus the $1,200 of directly connected itemized deductions; or 2. $2,200. Line 3 Subtract line 2 from line 1 and enter the result on this line. If zero or less, don’t complete the rest of the form. How- ever, you must still attach Form 8615 to your child’s tax re- turn. Figure the tax on your child’s taxable income in the normal manner. Line 4 (Child’s Taxable Income) Enter on line 4 your child’s taxable income from Form 1040 or 1040-NR, line 15. Child files Form 2555. If your child files Form 2555 (re- lating to foreign earned income), your child will use the Foreign Earned Income Tax Worksheet (in the Instruc- tions for Form 1040) to figure their tax. Enter the amount from line 3 of the Foreign Earned Income Tax Worksheet as their taxable income on Form 8615, line 4. Line 5 (Net Unearned Income) A child’s net unearned income can’t be more than his or her taxable income. Enter on Form 8615, line 5, the smaller of line 3 or line 4. This is the child’s unearned in- come. If zero or less, don’t complete the rest of the form. How- ever, you must still attach Form 8615 to your child’s tax re- turn. Figure the tax on your child’s taxable income in the normal manner. Step 2. Figuring a Tentative Tax at the Parent’s Tax Rate (Form 8615, Part II) The next step in completing Form 8615 is to figure a tenta- tive tax on the child's net unearned income at the parent's tax rate. The tentative tax at the parent's tax rate is the dif- ference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net Page 16 Publication 929 (2021)