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Handrblock free Publication 929 - Main Content Table of Contents Part 1. Handrblock free Rules for All Dependents Filing RequirementsEarned Income Only Unearned Income Only Both Earned and Unearned Income Other Filing Requirements Should a Return Be Filed Even If Not Required? Responsibility for Child's ReturnThird party designee. Handrblock free Designated as representative. Handrblock free IRS notice. Handrblock free Standard DeductionStandard Deduction of Zero Dependent's Own Exemption Withholding From WagesExceptions. Handrblock free Part 2. Handrblock free Tax on Unearned Income of Certain ChildrenWhich Parent's Return To Use Parent's Election To Report Child's Interest and DividendsEffect of Making the Election Figuring Child's Income Figuring Additional Tax Tax for Certain Children Who Have Unearned IncomeProviding Parental Information (Form 8615, Lines A–C) Step 1. Handrblock free Figuring the Child's Net Unearned Income (Form 8615, Part I) Step 2. Handrblock free Figuring a Tentative Tax at the Parent's Tax Rate (Form 8615, Part II) Step 3. Handrblock free Figuring the Child's Tax (Form 8615, Part III) Alternative Minimum Tax Illustrated Example Part 1. Handrblock free Rules for All Dependents This part of the publication discusses the filing requirements for dependents, who is responsible for a child's return, how to figure a dependent's standard deduction and exemption (if any), and whether a dependent can claim exemption from federal income tax withholding. Handrblock free Filing Requirements Whether a dependent has to file a return generally depends on the amount of the dependent's earned and unearned income and whether the dependent is married, is age 65 or older, or is blind. Handrblock free A dependent may have to file a return even if his or her income is less than the amount that would normally require a return. Handrblock free See Other Filing Requirements, later. Handrblock free The following sections apply to dependents with: Earned income only, Unearned income only, and Both earned and unearned income. Handrblock free  To find out whether a dependent must file, read the section that applies, or use Table 1. Handrblock free Earned Income Only A dependent whose gross income is only earned income must file a return if the gross income is more than the amount listed in the following table. Handrblock free Marital Status Amount Single   Under 65 and not blind $6,100 Either 65 or older or blind $7,600 65 or older and blind $9,100 Married*   Under 65 and not blind $6,100 Either 65 or older or blind $7,300 65 or older and blind $8,500 *If a dependent's spouse itemizes deductions on a separate return, the dependent must file a return if the dependent has $5 or more of gross income (earned and/or unearned). Handrblock free Example. Handrblock free William is 16. Handrblock free His mother claims an exemption for him on her income tax return. Handrblock free He worked part time on weekends during the school year and full time during the summer. Handrblock free He earned $7,000 in wages. Handrblock free He did not have any unearned income. Handrblock free He must file a tax return because he has earned income only and his gross income is more than $6,100. Handrblock free If he is blind, he does not have to file a return because his gross income is not more than $7,600. Handrblock free Unearned Income Only A dependent whose gross income is only unearned income must file a return if the gross income is more than the amount listed in the following table. Handrblock free Marital Status Amount Single   Under 65 and not blind $1,000 Either 65 or older or blind $2,500 65 or older and blind $4,000 Married*   Under 65 and not blind $1,000 Either 65 or older or blind $2,200 65 or older and blind $3,400 *If a dependent's spouse itemizes deductions on a separate return, the dependent must file a return if the dependent has $5 or more of gross income (earned and/or unearned). Handrblock free Example. Handrblock free Sarah is 18 and single. Handrblock free Her parents can claim an exemption for her on their income tax return. Handrblock free She received $1,970 of taxable interest and dividend income. Handrblock free She did not work during the year. Handrblock free She must file a tax return because she has unearned income only and her gross income is more than $1,000. Handrblock free If she is blind, she does not have to file a return because she has unearned income only and her gross income is not more than $2,500. Handrblock free Election to report child's unearned income on parent's return. Handrblock free   A parent of a child under age 19 (or under age 24 if a full-time student) may be able to elect to include the child's interest and dividend income on the parent's return. Handrblock free See Parent's Election To Report Child's Interest and Dividends in Part 2. Handrblock free If the parent makes this election, the child does not have to file a return. Handrblock free Both Earned and Unearned Income A dependent who has both earned and unearned income generally must file a return if the dependent's gross income is more than line 5 of the following worksheet. Handrblock free Filing Requirement Worksheet for Most Dependents 1. Handrblock free Enter dependent's earned income plus $350     2. Handrblock free Minimum amount   $1,000 3. Handrblock free Compare lines 1 and 2. Handrblock free Enter the larger amount     4. Handrblock free Maximum amount   6,100 5. Handrblock free Compare lines 3 and 4. Handrblock free Enter the smaller amount     6. Handrblock free Enter the dependent's gross income. Handrblock free If line 6 is more than line 5, the dependent must file an income tax return. Handrblock free If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. Handrblock free       Table 1. Handrblock free 2013 Filing Requirements for Dependents If your parent (or someone else) can claim you as a dependent, use this table to see if you must file a return. Handrblock free   See the definitions of “dependent,”“earned income,”“unearned income,” and “gross income” in the Glossary. Handrblock free   Single dependents—Were you either age 65 or older or blind?     No. Handrblock free You must file a return if any of the following apply. Handrblock free       Your unearned income was over $1,000. Handrblock free Your earned income was over $6,100. Handrblock free Your gross income was more than the larger of—       $1,000, or Your earned income (up to $5,750) plus $350. Handrblock free         Yes. Handrblock free You must file a return if any of the following apply. Handrblock free     Your unearned income was over $2,500 ($4,000 if 65 or older and blind), Your earned income was over $7,600 ($9,100 if 65 or older and blind), Your gross income was more than the larger of—       $2,500 ($4,000 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,850 ($3,350 if 65 or older and blind). Handrblock free       Married dependents—Were you either age 65 or older or blind?     No. Handrblock free You must file a return if any of the following apply. Handrblock free       Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Handrblock free Your unearned income was over $1,000. Handrblock free Your earned income was over $6,100. Handrblock free Your gross income was more than the larger of—       $1,000, or Your earned income (up to $5,750) plus $350. Handrblock free       Yes. Handrblock free You must file a return if any of the following apply. Handrblock free       Your gross income was at least $5 and your spouse files a separate return and itemizes deductions. Handrblock free Your unearned income was over $2,200 ($3,400 if 65 or older and blind), Your earned income was over $7,300 ($8,500 if 65 or older and blind), Your gross income was more than the larger of—       $2,200 ($3,400 if 65 or older and blind), or Your earned income (up to $5,750) plus $1,550 ($2,750 if 65 or older and blind). Handrblock free       Example 1. Handrblock free Joe is 20, single, not blind, and a full-time college student. Handrblock free He does not provide more than half of his own support, and his parents claim an exemption for him on their income tax return. Handrblock free He received $200 taxable interest income and earned $2,750 from a part-time job. Handrblock free He does not have to file a tax return because his gross income of $2,950 ($200 interest plus $2,750 in wages) is not more than $3,100, the amount on line 5 of his filled-in Filing Requirement Worksheet for Most Dependents (shown next). Handrblock free Filled-in Example 1 Filing Requirement Worksheet  for Most Dependents 1. Handrblock free Enter dependent's earned income plus $350   $ 3,100 2. Handrblock free Minimum amount   1,000 3. Handrblock free Compare lines 1 and 2. Handrblock free Enter the larger amount   3,100 4. Handrblock free Maximum amount   6,100 5. Handrblock free Compare lines 3 and 4. Handrblock free Enter the smaller amount   3,100 6. Handrblock free Enter the dependent's gross income. Handrblock free If line 6 is more than line 5, the dependent must file an income tax return. Handrblock free If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. Handrblock free   $ 2,950   Example 2. Handrblock free The facts are the same as in Example 1 except that Joe had $600 taxable interest income. Handrblock free He must file a tax return because his gross income of $3,350 ($600 interest plus $2,750 wages) is more than $3,100, the amount on line 5 of his filled-in worksheet (shown next). Handrblock free Filled-in Example 2 Filing Requirement Worksheet for Most Dependents 1. Handrblock free Enter dependent's earned income plus $350   $ 3,100 2. Handrblock free Minimum amount   1,000 3. Handrblock free Compare lines 1 and 2. Handrblock free Enter the larger amount   3,100 4. Handrblock free Maximum amount   6,100 5. Handrblock free Compare lines 3 and 4. Handrblock free Enter the smaller amount   3,100 6. Handrblock free Enter the dependent's gross income. Handrblock free If line 6 is more than line 5, the dependent must file an income tax return. Handrblock free If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 6 is $5 or more. Handrblock free   $ 3,350   Age 65 or older or blind. Handrblock free A dependent who is age 65 or older or blind must file a return if his or her gross income is more than line 7 of the following worksheet. Handrblock free Filing Requirement Worksheet  for Dependents Who Are Age 65 or Older or Blind 1. Handrblock free Enter dependent's earned income plus $350     2. Handrblock free Minimum amount   $1,000 3. Handrblock free Compare lines 1 and 2. Handrblock free Enter the larger amount     4. Handrblock free Maximum amount   6,100 5. Handrblock free Compare lines 3 and 4. Handrblock free Enter the smaller amount     6. Handrblock free Enter the amount from the following table that applies to the dependent       Marital Status Amount     Single         Either 65 or older or blind $1,500       65 or older and blind $3,000     Married         Either 65 or older or blind $1,200       65 or older and blind $2,400   7. Handrblock free Add lines 5 and 6. Handrblock free Enter the total     8. Handrblock free Enter the dependent's gross income. Handrblock free If line 8 is more than line 7, the dependent must file an income tax return. Handrblock free If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 8 is $5 or more     Example 3. Handrblock free The facts are the same as in Example 2 except that Joe is also blind. Handrblock free He does not have to file a return because his gross income of $3,350 is not more than $4,600, the amount on line 7 of his filled-in Filing Requirement Worksheet for Dependents Who Are Age 65 or Older or Blind (shown next). Handrblock free   Filled-in Example 3 Filing Requirement Worksheet  for Dependents Who Are Age 65 or Older or Blind 1. Handrblock free Enter dependent's earned income plus $350   $3,100 2. Handrblock free Minimum amount   1,000 3. Handrblock free Compare lines 1 and 2. Handrblock free Enter the larger amount   3,100 4. Handrblock free Maximum amount   6,100 5. Handrblock free Compare lines 3 and 4. Handrblock free Enter the smaller amount   3,100 6. Handrblock free Enter the amount from the following table that applies to the dependent   1,500   Marital Status Amount     Single         Either 65 or older or blind $1,500       65 or older and blind $3,000     Married         Either 65 or older or blind $1,200       65 or older and blind $2,400   7. Handrblock free Add lines 5 and 6. Handrblock free Enter the total   4,600 8. Handrblock free Enter the dependent's gross income. Handrblock free If line 8 is more than line 7, the dependent must file an income tax return. Handrblock free If the dependent is married and his or her spouse itemizes deductions on a separate return, the dependent must file an income tax return if line 8 is $5 or more   $3,350 Other Filing Requirements Some dependents may have to file a tax return even if their income is less than the amount that would normally require them to file a return. Handrblock free A dependent must file a tax return if he or she owes any other taxes, such as: Social security and Medicare taxes on tips not reported to his or her employer or on wages received from an employer who did not withhold these taxes, Uncollected social security and Medicare or railroad retirement taxes on tips reported to his or her employer or on group-term life insurance, Alternative minimum tax, Additional tax on a health savings account from Form 8889, Part III, Recapture taxes, such as the tax from recapture of an education credit, or Additional tax on a qualified plan, including an individual retirement arrangement (IRA), or other tax-favored account. Handrblock free But if the dependent is filing a return only because of this tax, the dependent can file Form 5329 by itself. Handrblock free A dependent must also file a tax return if he or she: Had wages of $108. Handrblock free 28 or more from a church or qualified church-controlled organization that is exempt from employer social security and Medicare taxes, or Had net earnings from self-employment of at least $400. Handrblock free Spouse itemizes. Handrblock free   A dependent must file a return if the dependent's spouse itemizes deductions on a separate return and the dependent has $5 or more of gross income (earned and/or unearned). Handrblock free Should a Return Be Filed Even If Not Required? Even if a dependent does not meet any of the filing requirements discussed earlier, he or she should file a tax return if either of the following applies. Handrblock free Income tax was withheld from his or her income. Handrblock free He or she qualifies for the earned income credit, additional child tax credit, health coverage tax credit, or refundable American opportunity education credit. Handrblock free See the tax return instructions to find out who qualifies for these credits. Handrblock free  By filing a return, the dependent can get a refund. Handrblock free Responsibility for Child's Return Generally, a child is responsible for filing his or her own tax return and for paying any tax, penalties, or interest on that return. Handrblock free If a child cannot file his or her own return for any reason, such as age, the child's parent, guardian, or other legally responsible person must file it for the child. Handrblock free Signing the child's return. Handrblock free   If the child cannot sign his or her return, a parent or guardian must sign the child's name followed by the words “By (signature), parent (or guardian) for minor child. Handrblock free ” Authority of parent or guardian. Handrblock free   A parent or guardian who signs a return on a child's behalf can deal with the IRS on all matters connected with the return. Handrblock free   In general, a parent or guardian who does not sign the child's return can only provide information concerning the child's return and pay the child's tax. Handrblock free That parent or guardian is not entitled to receive information from the IRS or legally bind the child to a tax liability arising from the return. Handrblock free Third party designee. Handrblock free   A child's parent or guardian who does not sign the child's return may be authorized, as a third party designee, to discuss the processing of the return with the IRS as well as provide information concerning the return. Handrblock free The child or the person signing the return on the child's behalf must check the “Yes” box in the “Third Party Designee” area of the return and name the parent or guardian as the designee. Handrblock free   If designated, a parent or guardian can respond to certain IRS notices and receive information about the processing of the return and the status of a refund or payment. Handrblock free This designation does not authorize the parent or guardian to receive any refund check, bind the child to any tax liability, or otherwise represent the child before the IRS. Handrblock free See the return instructions for more information. Handrblock free Designated as representative. Handrblock free   A parent or guardian who does not sign the child's return may be designated as the child's representative by the child or the person signing the return on the child's behalf. Handrblock free Form 2848, Power of Attorney and Declaration of Representative, is used to designate a child's representative. Handrblock free See Publication 947, Practice Before the IRS and Power of Attorney, for more information. Handrblock free   If designated, a parent or guardian can receive information about the child's return but cannot legally bind the child to a tax liability unless authorized to do so by the law of the state in which the child lives. Handrblock free IRS notice. Handrblock free   If you or the child receives a notice from the IRS concerning the child's return or tax liability, you should immediately inform the IRS that the notice concerns a child. Handrblock free The notice will show who to contact. Handrblock free The IRS will try to resolve the matter with the parent(s) or guardian(s) of the child consistent with their authority. Handrblock free Child's earnings. Handrblock free   For federal income tax purposes, amounts a child earns by performing services are included in the gross income of the child and not the gross income of the parent. Handrblock free This is true even if, under state law, the parent has the right to the earnings and may actually have received them. Handrblock free If the child does not pay the tax due on this income, the parent may be liable for the tax. Handrblock free Child's expenses. Handrblock free   Deductions for payments that are made out of a child's earnings are the child's, even if the payments are made by the parent. Handrblock free Example. Handrblock free You made payments on your child's behalf that are deductible as a business expense and a charitable contribution. Handrblock free You made the payments out of your child's earnings. Handrblock free These items can be deducted only on the child's return. Handrblock free Standard Deduction The standard deduction for an individual who can be claimed as a dependent on another person's tax return is generally limited to the larger of: $1,000, or The individual's earned income plus $350, but not more than the regular standard deduction (generally $6,100). Handrblock free However, the standard deduction may be higher for a dependent who: Is 65 or older, or Is blind. Handrblock free Certain dependents cannot claim any standard deduction. Handrblock free See Standard Deduction of Zero , later. Handrblock free Worksheet 1. Handrblock free   Use Worksheet 1 to figure the dependent's standard deduction. Handrblock free Worksheet 1. Handrblock free Standard Deduction Worksheet for Dependents Use this worksheet only if someone else can claim you (or your spouse, if filing jointly) as a dependent. Handrblock free If you were 65 or older and/or blind, check the correct number of boxes below. Handrblock free Put the total number of boxes checked in box c and go to line 1. Handrblock free a. Handrblock free You 65 or older   Blind   b. Handrblock free Your spouse, if claiming  spouse's exemption 65 or older   Blind   c. Handrblock free Total boxes checked         1. Handrblock free Enter your earned income (defined below) plus $350. Handrblock free If none, enter -0-. Handrblock free 1. Handrblock free     2. Handrblock free Minimum amount. Handrblock free   2. Handrblock free $1,000   3. Handrblock free Compare lines 1 and 2. Handrblock free Enter the larger of the two amounts here. Handrblock free 3. Handrblock free     4. Handrblock free Enter on line 4 the amount shown below for your filing status. Handrblock free       Single or Married filing separately—$6,100 Married filing jointly—$12,200 Head of household—$8,950 4. Handrblock free     5. Handrblock free Standard deduction. Handrblock free         a. Handrblock free Compare lines 3 and 4. Handrblock free Enter the smaller amount here. Handrblock free If under 65 and not blind, stop here. Handrblock free This is your standard deduction. Handrblock free Otherwise, go on to line 5b. Handrblock free 5a. Handrblock free     b. Handrblock free If 65 or older or blind, multiply $1,500 ($1,200 if married) by the number in box c above. Handrblock free Enter the result here. Handrblock free 5b. Handrblock free     c. Handrblock free Add lines 5a and 5b. Handrblock free This is your standard deduction for 2013. Handrblock free 5c. Handrblock free     Earned income includes wages, salaries, tips, professional fees, and other compensation received for personal services you performed. Handrblock free It also includes any amount received as a scholarship that you must include in income. Handrblock free   Example 1. Handrblock free Michael is single, age 15, and not blind. Handrblock free His parents can claim him as a dependent on their tax return. Handrblock free He has taxable interest income of $800 and wages of $150. Handrblock free He enters $500 (his earned income plus $350) on line 1 of Worksheet 1. Handrblock free On line 3, he enters $1,000, the larger of $500 or $1,000. Handrblock free Michael enters $6,100 on line 4. Handrblock free On line 5a, he enters $1,000, the smaller of $1,000 or $6,100. Handrblock free His standard deduction is $1,000. Handrblock free Example 2. Handrblock free Judy, a full-time student, is single, age 22, and not blind. Handrblock free Her parents can claim her as a dependent on their tax return. Handrblock free She has dividend income of $275 and wages of $2,500. Handrblock free She enters $2,850 (her earned income plus $350) on line 1 of Worksheet 1. Handrblock free On line 3, she enters $2,850, the larger of $2,850 or $1,000. Handrblock free She enters $6,100 on line 4. Handrblock free On line 5a, she enters $2,850 (the smaller of $2,850 or $6,100) as her standard deduction. Handrblock free Example 3. Handrblock free Amy, who is single, is claimed as a dependent on her parents' tax return. Handrblock free She is 18 years old and blind. Handrblock free She has taxable interest income of $1,000 and wages of $2,000. Handrblock free She enters $2,350 (her earned income plus $350) on line 1 of Worksheet 1. Handrblock free She enters $2,350 (the larger of $2,350 or $1,000) on line 3, $6,100 on line 4, and $2,350 (the smaller of $2,350 or $6,100) on line 5a. Handrblock free Because Amy is blind, she checks the box for blindness and enters “1” in box c at the top of Worksheet 1. Handrblock free She enters $1,500 (the number in box c times $1,500) on line 5b. Handrblock free Her standard deduction on line 5c is $3,850 ($2,350 + $1,500). Handrblock free Standard Deduction of Zero The standard deduction for the following dependents is zero. Handrblock free A married dependent filing a separate return whose spouse itemizes deductions. Handrblock free A dependent who files a return for a period of less than 12 months due to a change in his or her annual accounting period. Handrblock free A nonresident or dual-status alien dependent, unless the dependent is married to a U. Handrblock free S. Handrblock free citizen or resident alien at the end of the year and chooses to be treated as a U. Handrblock free S. Handrblock free resident for the year. Handrblock free See Publication 519, U. Handrblock free S. Handrblock free Tax Guide for Aliens, for information on making this choice. Handrblock free Example. Handrblock free Jennifer, who is a dependent of her parents, is entitled to file a joint return with her husband. Handrblock free However, her husband elects to file a separate return and itemize his deductions. Handrblock free Because he itemizes, Jennifer's standard deduction on her return is zero. Handrblock free She can, however, itemize any of her allowable deductions. Handrblock free Dependent's Own Exemption A person who can be claimed as a dependent on another taxpayer's return cannot claim his or her own exemption. Handrblock free This is true even if the other taxpayer does not actually claim the exemption. Handrblock free Example. Handrblock free James and Barbara can claim their child, Ben, as a dependent on their return. Handrblock free Ben is a college student who works during the summer and must file a tax return. Handrblock free Ben cannot claim his own exemption on his return. Handrblock free This is true even if James and Barbara do not claim him as a dependent on their return. Handrblock free Withholding From Wages Employers generally withhold federal income tax, social security tax, and Medicare tax from an employee's wages. Handrblock free If the employee claims exemption from withholding on Form W-4, the employer will not withhold federal income tax. Handrblock free The exemption from withholding does not apply to social security and Medicare taxes. Handrblock free Conditions for exemption from withholding. Handrblock free   An employee can claim exemption from withholding for 2014 only if he or she meets both of the following conditions. Handrblock free For 2013, the employee had a right to a refund of all federal income tax withheld because he or she had no tax liability. Handrblock free For 2014, the employee expects a refund of all federal income tax withheld because he or she expects to have no tax liability. Handrblock free Dependents. Handrblock free   An employee who is a dependent ordinarily cannot claim exemption from withholding if both of the following are true. Handrblock free The employee's gross income will be more than $1,000, the minimum standard deduction for 2014. Handrblock free The employee's unearned income will be more than $350. Handrblock free Exceptions. Handrblock free   An employee may be able to claim exemption from withholding even if the employee is a dependent, if the employee: Is age 65 or older, Is blind, or Will claim on his or her 2014 tax return: Adjustments to income, Tax credits, or Itemized deductions. Handrblock free The above exceptions do not apply to supplemental wages greater than $1,000,000. Handrblock free For more information, see Exemption From Withholding in chapter 1 of Publication 505. Handrblock free Example. Handrblock free Guy is 17 and a student. Handrblock free During the summer he works part time at a grocery store. Handrblock free He expects to earn about $1,200 this year. Handrblock free He also worked at the store last summer and received a refund of all his withheld income tax because he did not have a tax liability. Handrblock free The only other income he expects during the year is $375 interest on a savings account. Handrblock free He expects that his parents will be able to claim him as a dependent on their tax return. Handrblock free He is not blind and will not claim adjustments to income, itemized deductions, a higher standard deduction, or tax credits on his return. Handrblock free Guy cannot claim exemption from withholding when he fills out Form W-4 because his parents will be able to claim him as a dependent, his gross income will be more than $1,000 (the minimum standard deduction amount) and his unearned income will be more than $350. Handrblock free Claiming exemption from withholding. Handrblock free    To claim exemption from withholding, an employee must enter “Exempt” in the space provided on Form W-4, line 7. Handrblock free The employee must complete the rest of the form, as explained in the form instructions, and give it to his or her employer. Handrblock free Renewing an exemption from withholding. Handrblock free   An exemption from withholding is good for only one year. Handrblock free An employee must file a new Form W-4 by February 15 each year to continue the exemption. Handrblock free Part 2. Handrblock free Tax on Unearned Income of Certain Children The two rules that follow may affect the tax on the unearned income of certain children. Handrblock free If the child's interest and dividend income (including capital gain distributions) total less than $10,000, the child's parent may be able to choose to include that income on the parent's return rather than file a return for the child. Handrblock free (See Parent's Election To Report Child's Interest and Dividends , later. Handrblock free ) If the child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Handrblock free (See Tax for Certain Children Who Have Unearned Income , later. Handrblock free ) For these rules, the term “child” includes a legally adopted child and a stepchild. Handrblock free These rules apply whether or not the child is a dependent. Handrblock free These rules do not apply if neither of the child's parents were living at the end of the year. Handrblock free Which Parent's Return To Use If a child's parents are married to each other and file a joint return, use the joint return to figure the tax on the child's unearned income. Handrblock free The tax rate and other return information from that return are used to figure the child's tax as explained later under Tax for Certain Children Who Have Unearned Income . Handrblock free Parents Who Do Not File a Joint Return For parents who do not file a joint return, the following discussions explain which parent's tax return must be used to figure the tax. Handrblock free Only the parent whose tax return is used can make the election described under Parent's Election To Report Child's Interest and Dividends . Handrblock free Parents are married. Handrblock free   If the child's parents file separate returns, use the return of the parent with the greater taxable income. Handrblock free Parents not living together. Handrblock free   If the child's parents are married to each other but not living together, and the parent with whom the child lives (the custodial parent) is considered unmarried, use the return of the custodial parent. Handrblock free If the custodial parent is not considered unmarried, use the return of the parent with the greater taxable income. Handrblock free   For an explanation of when a married person living apart from his or her spouse is considered unmarried, see Head of Household in Publication 501. Handrblock free Parents are divorced. Handrblock free   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 parent) has not remarried, use the return of the custodial parent. Handrblock free Custodial parent remarried. Handrblock free   If the custodial parent has remarried, the stepparent (rather than the noncustodial parent) is treated as the child's other parent. Handrblock free Therefore, if the custodial parent and the stepparent file a joint return, use that joint return. Handrblock free Do not use the return of the noncustodial parent. Handrblock free   If the custodial parent and the stepparent are married, but file separate returns, use the return of the one with the greater taxable income. Handrblock free If the custodial parent and the stepparent are married but not living together, the earlier discussion under Parents not living together applies. Handrblock free Parents never married. Handrblock free   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. Handrblock free If the parents did not live together all year, the rules explained earlier under Parents are divorced apply. Handrblock free Widowed parent remarried. Handrblock free   If a widow or widower remarries, the new spouse is treated as the child's other parent. Handrblock free The rules explained earlier under Custodial parent remarried apply. Handrblock free Parent's Election To Report Child's Interest and Dividends You may be able to elect to include your child's interest and dividend income (including capital gain distributions) on your tax return. Handrblock free If you do, your child will not have to file a return. Handrblock free You can make this election only if all the following conditions are met. Handrblock free Your child was under age 19 (or under age 24 if a full-time student) at the end of the year. Handrblock free Your child had income only from interest and dividends (including capital gain distributions and Alaska Permanent Fund dividends). Handrblock free The child's gross income was less than $10,000. Handrblock free The child is required to file a return unless you make this election. Handrblock free The child does not file a joint return for the year. Handrblock free No estimated tax payment was made for the year, and no overpayment from the previous year (or from any amended return) was applied to this year under your child's name and social security number. Handrblock free No federal income tax was withheld from your child's income under the backup withholding rules. Handrblock free You are the parent whose return must be used when applying the special tax rules for children. Handrblock free (See Which Parent's Return To Use , earlier. Handrblock free ) These conditions are also shown in Figure 1. Handrblock free Certain January 1 birthdays. Handrblock free   A child born on January 1, 1995, is considered to be age 19 at the end of 2013. Handrblock free You cannot make this election for such a child unless the child was a full-time student. Handrblock free   A child born on January 1, 1990, is considered to be age 24 at the end of 2013. Handrblock free You cannot make this election for such a child. Handrblock free How to make the election. Handrblock free    Make the election by attaching Form 8814 to your Form 1040 or Form 1040NR. Handrblock free (If you make this election, you cannot file Form 1040A or Form 1040EZ. Handrblock free ) Attach a separate Form 8814 for each child for whom you make the election. Handrblock free You can make the election for one or more children and not for others. Handrblock free Effect of Making the Election The federal income tax on your child's income may be more if you make the Form 8814 election. Handrblock free Rate may be higher. Handrblock free   If your child received qualified dividends or capital gain distributions, you may pay up to $100 more tax if you make this election instead of filing a separate tax return for the child. Handrblock free This is because the tax rate on the child's income between $1,000 and $2,000 is 10% if you make this election. Handrblock free However, if you file a separate return for the child, the tax rate may be as low as 0% (zero percent) because of the preferential tax rates for qualified dividends and capital gain distributions. Handrblock free Deductions you cannot take. Handrblock free   By making the Form 8814 election, you cannot take any of the following deductions that the child would be entitled to on his or her return. Handrblock free The additional standard deduction if the child is blind. Handrblock free The deduction for a penalty on an early withdrawal of your child's savings. Handrblock free Itemized deductions (such as your child's investment expenses or charitable contributions). Handrblock free Figure 1. Handrblock free Can You Include Your Child's Income On Your Tax Return? Please click here for the text description of the image. Handrblock free Figure 1. Handrblock free Can You Include Your Child's Income On Your Tax Return? Deductible investment interest. Handrblock free   If you use Form 8814, your child's unearned income is considered your unearned income. Handrblock free To figure the limit on your deductible investment interest, add the child's unearned income to yours. Handrblock free However, if your child received qualified dividends, capital gain distributions, or Alaska Permanent Fund dividends, see chapter 3 of Publication 550 for information about how to figure the limit. Handrblock free Alternative minimum tax. Handrblock free    If your child received tax-exempt interest (or exempt-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 alternative minimum tax (AMT) purposes. Handrblock free If it is, you must include it with your own tax preference items when figuring your AMT. Handrblock free See Form 6251, Alternative Minimum Tax—Individuals, and its instructions for details. Handrblock free Reduced deductions or credits. Handrblock free   If you use Form 8814, your increased adjusted gross income may reduce certain deductions or credits on your return, including the following. Handrblock free Deduction for contributions to a traditional individual retirement arrangement (IRA). Handrblock free Deduction for student loan interest. Handrblock free Itemized deductions for medical expenses, casualty and theft losses, and certain miscellaneous expenses. Handrblock free Credit for child and dependent care expenses. Handrblock free Child tax credit. Handrblock free Education tax credits. Handrblock free Earned income credit. Handrblock free Penalty for underpayment of estimated tax. Handrblock free   If you make this election for 2013 and did not have enough tax withheld or pay enough estimated tax to cover the tax you owe, you may be subject to a penalty. Handrblock free If you plan to make this election for 2014, you may need to increase your federal income tax withholding or your estimated tax payments to avoid the penalty. Handrblock free Get Publication 505 for more information. Handrblock free Figuring Child's Income Use Form 8814, Part I, to figure your child's interest and dividend income to report on your return. Handrblock free Only the amount over $2,000 is added to your income. Handrblock free The amount over $2,000 is shown on Form 8814, line 6. Handrblock free Unless the child's income includes qualified dividends or capital gain distributions (discussed next), the same amount is shown on Form 8814, line 12. Handrblock free Include the amount from Form 8814, line 12, on Form 1040 or Form 1040NR, line 21. Handrblock free If you file more than one Form 8814, include the total amounts from line 12 of all your Forms 8814 on Form 1040 or Form 1040NR, line 21. Handrblock free On the dotted line next to line 21, enter “Form 8814” and the total of the Form 8814, line 12 amounts. Handrblock free Note. Handrblock free The tax on the first $2,000 is figured on Form 8814, Part II. Handrblock free See Figuring Additional Tax , later. Handrblock free Qualified dividends. Handrblock free   Enter on Form 8814, line 2a, any ordinary dividends your child received. Handrblock free This amount may include qualified dividends. Handrblock free Qualified dividends are those dividends reported on Form 1040, line 9b, or Form 1040NR, line 10b, and are eligible for lower tax rates that apply to a net capital gain. Handrblock free For detailed information about qualified dividends, see Publication 550. Handrblock free   If your child received qualified dividends, the amount of these dividends that is added to your income must be reported on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. Handrblock free You do not include these dividends on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR. Handrblock free   Enter the child's qualified dividends on Form 8814, line 2b. Handrblock free But do not include this amount on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. Handrblock free Instead, include the amount from Form 8814, line 9, on Form 1040, lines 9a and 9b, or Form 1040NR, lines 10a and 10b. Handrblock free (The amount on Form 8814, line 9, may be less than the amount on Form 8814, line 2b, because lines 7 through 12 of the form divide the $2,000 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. Handrblock free ) Capital gain distributions. Handrblock free   Enter on Form 8814, line 3, any capital gain distributions your child received. Handrblock free The amount of these distributions that is added to your income must be reported on Schedule D (Form 1040), line 13, or, if you are not required to file Schedule D, on Form 1040, line 13, or Form 1040NR, line 14. Handrblock free You do not include it on Form 8814, line 12, or on line 21 of Form 1040 or Form 1040NR. Handrblock free   Include the amount from Form 8814, line 10, on Schedule D, line 13; Form 1040, line 13; or Form 1040NR, line 14, whichever applies. Handrblock free (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 $2,000 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. Handrblock free ) Collectibles (28% rate) gain. Handrblock free    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. Handrblock free Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. Handrblock free The numerator is the part of the child's total capital gain distribution that is collectibles (28% rate) gain. Handrblock free The denominator is the child's total capital gain distribution. Handrblock free Enter the result on line 4 of the 28% Rate Gain Worksheet. Handrblock free Unrecaptured section 1250 gain. Handrblock free   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 Section 1250 Gain Worksheet in the instructions for Schedule D, line 19. Handrblock free Multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. Handrblock free The numerator is the part of the child's total capital gain distribution that is unrecaptured section 1250 gain. Handrblock free The denominator is the child's total capital gain distribution. Handrblock free Enter the result on the Unrecaptured Section 1250 Gain Worksheet, line 11. Handrblock free Section 1202 gain. Handrblock free   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 exclusion. Handrblock free (For information about the exclusion, see chapter 4 of Publication 550. Handrblock free ) To figure that part, multiply the child's capital gain distribution included on Schedule D, line 13, by a fraction. Handrblock free The numerator is the part of the child's total capital gain distribution that is section 1202 gain. Handrblock free The denominator is the child's total capital gain distribution. Handrblock free Your section 1202 exclusion is generally 50% of the result, but may be subject to a limit. Handrblock free In some cases, the exclusion is more than 50%. Handrblock free See the instructions for Schedule D for details and information on how to report the exclusion amount. Handrblock free Example. Handrblock free Fred is 6 years old. Handrblock free In 2013, he received dividend income of $2,100, which included $1,575 of ordinary dividends and a $525 capital gain distribution from a mutual fund. Handrblock free (None of the distributions were reported on Form 1099-DIV as unrecaptured section 1250 gain, section 1202 gain, or collectibles (28% rate) gain. Handrblock free ) All of the ordinary dividends are qualified dividends. Handrblock free He has no other income and is not subject to backup withholding. Handrblock free No estimated tax payments were made under his name and social security number. Handrblock free Fred's parents elect to include Fred's income on their tax return instead of filing a return for him. Handrblock free They figure the amount to report on Form 1040, lines 9a and 9b, the amount to report on their Schedule D, line 13, and the amount to report on Form 1040, line 21, as follows. Handrblock free They leave lines 1a and 1b of Form 8814 blank because Fred does not have any interest income. Handrblock free They enter his ordinary dividends of $1,575 on lines 2a and 2b because all of Fred's ordinary dividends are qualified dividends. Handrblock free They enter the amount of Fred's capital gain distributions, $525, on line 3. Handrblock free Next, they add the amounts on lines 1a, 2a, and 3 and enter the result, $2,100, on line 4. Handrblock free They subtract the base amount on line 5, $2,000, from the amount on line 4, $2,100, and enter the result, $100, on line 6. Handrblock free This is the total amount from Form 8814 to be reported on their return. Handrblock free Next, they figure how much of this amount is qualified dividends and how much is capital gain distributions. Handrblock free They divide the amount on line 2b, $1,575, by the amount on line 4, $2,100. Handrblock free They enter the result, . Handrblock free 75, on line 7. Handrblock free They divide the amount on line 3, $525, by the amount on line 4, $2,100. Handrblock free They enter the result, . Handrblock free 25, on line 8. Handrblock free They multiply the amount on line 6, $100, by the decimal on line 7, . Handrblock free 75, and enter the result, $75, on line 9. Handrblock free They multiply the amount on line 6, $100, by the decimal on line 8, . Handrblock free 25, and enter the result, $25, on line 10. Handrblock free They include the amount from line 9, $75, on lines 9a and 9b of their Form 1040 and enter “Form 8814 – $75” on the dotted lines next to lines 9a and 9b. Handrblock free They include the amount from line 10, $25, on line 13 of their Schedule D (Form 1040) and enter “Form 8814 – $25” on the dotted line next to Schedule D, line 13. Handrblock free They enter $100 ($75 + $25) on line 11 and -0- ($100 – $100) on line 12. Handrblock free Because the amount on line 12 is -0-, they do not include any amount from Form 8814 on their Form 1040, line 21. Handrblock free Figuring Additional Tax Use Form 8814, Part II, to figure the tax on the $2,000 of your child's interest and dividends that you do not include in your income. Handrblock free This tax is added to the tax figured on your income. Handrblock free This additional tax is the smaller of: 10% x (your child's gross income − $1,000), or $100. Handrblock free Include the amount from line 15 of all your Forms 8814 in the total on Form 1040, line 44, or Form 1040NR, line 42. Handrblock free Check box a on Form 1040, line 44, or Form 1040NR, line 42. Handrblock free Tax for Certain Children Who Have Unearned Income If a child's interest, dividends, and other unearned income total more than $2,000, part of that income may be taxed at the parent's tax rate instead of the child's tax rate. Handrblock free If the parent does not or cannot choose to include the child's income on the parent's return, use Form 8615 to figure the child's tax. Handrblock free Attach the completed form to the child's Form 1040, Form 1040A, or Form 1040NR. Handrblock free When Form 8615 must be filed. Handrblock free   Form 8615 must be filed for a child if all of the following statements are true. Handrblock free The child's unearned income was more than $2,000. Handrblock free The child is required to file a return for 2013. Handrblock free The child either: Was under age 18 at the end of the year, Was age 18 at the end of the year and did not have earned income that was more than half of his or her support, or Was over age 18 and under age 24 at the end of the year, was a full-time student, and did not have earned income that was more than half of his or her support. Handrblock free At least one of the child's parents was alive at the end of 2013. Handrblock free The child does not file a joint return for 2013. Handrblock free These conditions are also shown in Figure 2. Handrblock free Certain January 1 birthdays. Handrblock free   Use the following chart to determine whether certain children with January 1 birthdays meet condition 3 under When Form 8615 must be filed. Handrblock free IF a child was born on. Handrblock free . Handrblock free . Handrblock free THEN, at the end of 2013, the child is considered to be. Handrblock free . Handrblock free . Handrblock free January 1, 1996 18* January 1, 1995 19** January 1, 1990 24*** *This child is not under age 18. Handrblock free The child meets condition 3 only if the child did not have earned income that was more than half of the child's support. Handrblock free  **This child meets condition 3 only if the child was a full-time student who did not have earned income that was more than half of the child's support. Handrblock free  ***Do not use Form 8615 for this child. Handrblock free Figure 2. Handrblock free Do You Have To Use Form 8615 To Figure Your Child's Tax? Please click here for the text description of the image. Handrblock free Figure 2. Handrblock free Do You Have To Use Form 8615 To Figure Your Child's Tax? Providing Parental Information (Form 8615, Lines A–C) On Form 8615, lines A and B, enter the parent's name and social security number. Handrblock free (If the parents filed a joint return, enter the name and social security number listed first on the joint return. Handrblock free ) On line C, check the box for the parent's filing status. Handrblock free See Which Parent's Return To Use, earlier, for information on which parent's return information must be used on Form 8615. Handrblock free Parent with different tax year. Handrblock free   If the parent and the child do not have the same tax year, complete Form 8615 using the information on the parent's return for the tax year that ends in the child's tax year. Handrblock free Example. Handrblock free Kimberly must use her mother's tax and taxable income to complete her Form 8615 for calendar year 2013 (January 1 – December 31). Handrblock free Kimberly's mother files her tax return on a fiscal year basis (July 1 – June 30). Handrblock free Kimberly must use the information on her mother's return for the tax year ending June 30, 2013, to complete her 2013 Form 8615. Handrblock free Parent's return information not known timely. Handrblock free   If the information needed from the parent's return is not known by the time the child's return is due (usually April 15), you can file the return using estimates. Handrblock free   You can use any reasonable estimate. Handrblock free This includes using information from last year's return. Handrblock free If you use an estimated amount on Form 8615, enter “Estimated” on the line next to the amount. Handrblock free   When you get the correct information, file an amended return on Form 1040X, Amended U. Handrblock free S. Handrblock free Individual Income Tax Return. Handrblock free Extension of time to file. Handrblock free   Instead of using estimates, you can get an automatic 6-month extension of time to file if, by the date your return is due, you file Form 4868, Application for Automatic Extension of Time To File U. Handrblock free S. Handrblock free Individual Income Tax Return. Handrblock free See the instructions for Form 4868 for details. Handrblock free    An extension of time to file is not an extension of time to pay. Handrblock free You must make an accurate estimate of the tax for 2013. Handrblock free If you do not pay the full amount due by the regular due date, the child will owe interest and may also be charged penalties. Handrblock free See Form 4868 and its instructions. Handrblock free Parent's return information not available. Handrblock free   If a child cannot get the required information about his or her parent's tax return, the child (or the child's legal representative) can request the necessary information from the Internal Revenue Service (IRS). Handrblock free How to request. Handrblock free   After the end of the tax year, send a signed, written request for the information to the Internal Revenue Service Center where the parent's return will be filed. Handrblock free (The IRS cannot process a request received before the end of the tax year. Handrblock free )    You should also consider getting an extension of time to file the child's return, because there may be a delay in getting the requested information. Handrblock free   The request must contain all of the following. Handrblock free A statement that you are making the request to comply with section 1(g) of the Internal Revenue Code and that you have tried to get the information from the parent. Handrblock free Proof of the child's age (for example, a copy of the child's birth certificate). Handrblock free Evidence the child has more than $2,000 of unearned income (for example, a copy of the child's prior year tax return or copies of Forms 1099 for the current year). Handrblock free The name, address, social security number (if known), and filing status (if known) of the parent whose information is to be shown on Form 8615. Handrblock free    A child's legal representative making the request should include a copy of his or her Power of Attorney, such as Form 2848, or proof of legal guardianship. Handrblock free Step 1. Handrblock free Figuring the Child's Net Unearned Income (Form 8615, Part I) The first step in figuring a child's tax using Form 8615 is to figure the child's net unearned income. Handrblock free To do that, use Form 8615, Part I. Handrblock free Line 1 (Unearned Income) If the child had no earned income, enter on this line the adjusted gross income shown on the child's return. Handrblock free Adjusted gross income is shown on Form 1040, line 38; Form 1040A, line 22; or Form 1040NR, line 37. Handrblock free Form 1040EZ and Form 1040NR-EZ cannot be used if Form 8615 must be filed. Handrblock free If the child had earned income, figure the amount to enter on Form 8615, line 1, by using the worksheet in the instructions for the form. Handrblock free However, use the following worksheet if: the child has excluded any foreign earned income, deducted a loss from self-employment, or has a net operating loss from another year. Handrblock free Alternate Worksheet for Form 8615, Line 1 A. Handrblock free Enter the amount from the child's Form 1040, line 22, or Form 1040NR, line 23   B. Handrblock free Enter the total of any net loss  from self-employment, any net operating loss deduction, any foreign earned income exclusion, and any foreign housing exclusion from the child's Form 1040 or Form 1040NR. Handrblock free Enter this total as a positive number (greater than zero)   C. Handrblock free Add line A and line B and  enter the total   D. Handrblock free Enter the child's earned income plus any amount from the child's Form 1040, line 30, or the child's Form 1040NR, line 30     Generally, the child's earned income is the total of the amounts reported on Form 1040, lines 7, 12, and 18 (if line 12 or 18 is a loss, use zero) or Form 1040NR, lines 8, 13, and 19 (if line 13 or 19 is a loss, use zero)   E. Handrblock free Subtract line D from line C. Handrblock free Enter the result here and on Form 8615, line 1   Unearned income defined. Handrblock free   Unearned income is generally all income other than salaries, wages, and other amounts received as pay for work actually performed. Handrblock free It includes taxable interest, dividends, capital gains (including capital gain distributions), the taxable part of social security and pension payments, certain distributions from trusts, and unemployment compensation. Handrblock free Unearned income includes amounts produced by assets the child obtained with earned income (such as interest on a savings account into which the child deposited wages). Handrblock free Nontaxable income. Handrblock free   For this purpose, unearned income includes only amounts the child must include in gross income. Handrblock free Nontaxable unearned income, such as tax-exempt interest and the nontaxable part of social security and pension payments, is not included. Handrblock free Capital loss. Handrblock free   A child's capital losses are taken into account in figuring the child's unearned income. Handrblock free Capital losses are first applied against capital gains. Handrblock free If the capital losses are more than the capital gains, the difference (up to $3,000) is subtracted from the child's interest, dividends, and other unearned income. Handrblock free Any difference over $3,000 is carried to the next year. Handrblock free Income from property received as a gift. Handrblock free   A child's unearned income includes all income produced by property belonging to the child. Handrblock free This is true even if the property was transferred to the child, regardless of when the property was transferred or purchased or who transferred it. Handrblock free   A child's unearned income includes income produced by property given as a gift to the child. Handrblock free This includes gifts to the child from grandparents or any other person and gifts made under the Uniform Gift to Minors Act. Handrblock free Example. Handrblock free Amanda Black, age 13, received the following income. Handrblock free Dividends—$800 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. Handrblock free Amanda's unearned income is $2,100. Handrblock free This is the total of the dividends ($800), taxable interest ($1,200), and capital gains reduced by capital losses ($300 − $200 = $100). Handrblock free Her wages are earned (not unearned) income because they are received for work actually performed. Handrblock free Her tax-exempt interest is not included because it is nontaxable. Handrblock free Trust income. Handrblock free   If a 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 the child. Handrblock free   However, taxable distributions from a qualified disability trust are considered earned income for the purposes of completing Form 8615. Handrblock free See the Form 8615 instructions for details. Handrblock free Adjustment to income. Handrblock free   In figuring the amount to enter on line 1, the child's unearned income is reduced by any penalty on the early withdrawal of savings. Handrblock free Line 2 (Deductions) If the child does not itemize deductions on Schedule A (Form 1040 or Form 1040NR), enter $2,000 on line 2. Handrblock free If the child itemizes deductions, enter on line 2 the larger of: $1,000 plus the portion of the child's itemized deductions on Schedule A (Form 1040), line 29 (or Schedule A (Form 1040NR), line 15), that are directly connected with the production of the unearned income entered on line 1, or $2,000. Handrblock free Directly connected. Handrblock free   Itemized deductions are directly connected with the production of unearned income if they are for expenses paid to produce or collect taxable income or to manage, conserve, or maintain property held for producing income. Handrblock free These expenses include custodian fees and service charges, service fees to collect taxable interest and dividends, and certain investment counsel fees. Handrblock free    These expenses are added to certain other miscellaneous itemized deductions on Schedule A (Form 1040). Handrblock free Only the amount greater than 2% of the child's adjusted gross income can be deducted. Handrblock free See Publication 529, Miscellaneous Deductions, for more information. Handrblock free Example 1. Handrblock free Roger, age 12, has unearned income of $8,000, no other income, no adjustments to income, and itemized deductions of $300 (net of the 2%-of-adjusted-gross-income limit) that are directly connected with his unearned income. Handrblock free His adjusted gross income is $8,000, which is entered on Form 1040, line 38, and on Form 8615, line 1. Handrblock free Roger enters $2,000 on line 2 because that is more than the total of $1,000 plus his directly-connected itemized deductions of $300. Handrblock free Example 2. Handrblock free Eleanor, age 8, has unearned income of $16,000 and an early withdrawal penalty of $100. Handrblock free She has no other income. Handrblock free She has itemized deductions of $1,050 (net of the 2%-of-adjusted-gross-income limit) that are directly connected with the production of her unearned income. Handrblock free Her adjusted gross income, entered on line 1, is $15,900 ($16,000 − $100). Handrblock free The amount on line 2 is $2,050. Handrblock free This is the larger of: $1,000 plus the $1,050 of directly connected itemized deductions, or $2,000. Handrblock free Line 3 Subtract line 2 from line 1 and enter the result on this line. Handrblock free If zero or less, do not complete the rest of the form. Handrblock free However, you must still attach Form 8615 to the child's tax return. Handrblock free Figure the tax on the child's taxable income in the normal manner. Handrblock free Line 4 (Child's Taxable Income) Enter on line 4 the child's taxable income from Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 41. Handrblock free Child files Form 2555 or 2555-EZ. Handrblock free   If the child files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the Foreign Earned Income Tax Worksheet (in the Form 1040 instructions) is used to figure the child's tax. Handrblock free Enter the amount from line 3 of the Foreign Earned Income Tax Worksheet as the child's taxable income on Form 8615, line 4. Handrblock free Line 5 (Net Unearned Income) A child's net unearned income cannot be more than his or her taxable income. Handrblock free Enter on Form 8615, line 5, the smaller of line 3 or line 4. Handrblock free This is the child's net unearned income. Handrblock free If zero or less, do not complete the rest of the form. Handrblock free However, you must still attach Form 8615 to the child's tax return. Handrblock free Figure the tax on the child's taxable income in the normal manner. Handrblock free Step 2. Handrblock free 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 tentative tax on the child's net unearned income at the parent's tax rate. Handrblock free The tentative tax at the parent's tax rate is the difference between the tax on the parent's taxable income figured with the child's net unearned income (plus the net unearned income of any other child whose Form 8615 includes the tax return information of that parent) and the tax figured without it. Handrblock free When figuring the tentative tax at the parent's tax rate on Form 8615, do not refigure any of the exclusions, deductions, or credits on the parent's return because of the child's net unearned income. Handrblock free For example, do not refigure the medical expense deduction. Handrblock free Figure the tentative tax on Form 8615, lines 6 through 13. Handrblock free Line 6 (Parent's Taxable Income) Enter on line 6 the amount from the parent's Form 1040, line 43; Form 1040A, line 27; Form 1040EZ, line 6; Form 1040NR, line 41; or Form 1040NR-EZ, line 14. Handrblock free If the parent's taxable income is zero or less, enter zero on line 6. Handrblock free Parent files Form 2555 or 2555-EZ. Handrblock free   If the parent files Form 2555 or 2555-EZ to claim the foreign earned income exclusion, housing exclusion, or housing deduction, the Foreign Earned Income Tax Worksheet in the Form 1040 instructions is used to figure the parent's tax. Handrblock free Enter the amount from line 3 of the Foreign Earned Income Tax Worksheet as the parent's taxable income, on line 6 of Form 8615. Handrblock free Line 7 (Net Unearned Income of Other Children) If the tax return information of the parent is also used on any other child's Form 8615, enter on line 7 the total of the amounts from line 5 of all the other children's Forms 8615. Handrblock free Do not include the amount from line 5 of the Form 8615 being completed. Handrblock free (The term “other child” means any other child whose Form 8615 uses the tax information of the parent identified on Lines A and B of Form 8615. Handrblock free ) Example. Handrblock free Paul and Jane Persimmon have three children, Sharon, Jerry, and Mike, who must attach Form 8615 to their tax returns. Handrblock free The children's net unearned income amounts on line 5 of their Forms 8615 are: Sharon—$800 Jerry—$600 Mike—$1,000 Line 7 of Sharon's Form 8615 will show $1,600, the total of the amounts on line 5 of Jerry's and Mike's Forms 8615. Handrblock free Line 7 of Jerry's Form 8615 will show $1,800 ($800 + $1,000). Handrblock free Line 7 of Mike's Form 8615 will show $1,400 ($800 + $600). Handrblock free Other children's information not available. Handrblock free   If the net unearned income of the other children is not available when the return is due, either file the return using estimates or get an extension of time to file. Handrblock free Estimates and extensions are discussed earlier under Providing Parental Information (Form 8615, Lines A–C) . Handrblock free Line 8 (Parent's Taxable Income Plus Children's Net Unearned Income) Enter on this line the total of lines 5, 6, and 7. Handrblock free You must determine the amount of net capital gain and qualified dividends included on this line before completing Form 8615, line 9. Handrblock free Net capital gain. Handrblock free   Net capital gain is the smaller of the gain, if any, on Schedule D (Form 1040), line 15, or the gain, if any, on Schedule D, line 16. Handrblock free If Schedule D is not required, it is the amount on Form 1040, line 13; Form 1040A, line 10; or Form 1040NR, line 14. Handrblock free Qualified dividends. Handrblock free   Qualified dividends are those dividends reported on line 9b of Form 1040 or Form 1040A, or line 10b of Form 1040NR. Handrblock free Net capital gain and qualified dividends on line 8. Handrblock free   If neither the child, nor the parent, nor any other child has net capital gain, the net capital gain on line 8 is zero. Handrblock free   If neither the child, nor the parent, nor any other child has qualified dividends, the amount of qualified dividends on line 8 is zero. Handrblock free   If the child, parent, or any other child has net capital gain, figure the amount of net capital gain included on line 8 by adding together the net capital gain amounts included on lines 5, 6, and 7 of Form 8615. Handrblock free   If the child, parent, or any other child has qualified dividends, figure the amount of qualified dividends included on line 8 by adding together the qualified dividend amounts included on lines 5, 6, and 7. Handrblock free   Use the instructions for Form 8615, line 8, including the appropriate Line 5 Worksheet, to find these amounts. Handrblock free See the instructions for Form 8615 for more details. Handrblock free Note. Handrblock free The amount of any net capital gain or qualified dividends is not separately reported on line 8. Handrblock free It is  needed, however, when figuring the tax on line 9. Handrblock free Line 9 (Tax on Parent's Taxable Income Plus Children's Net Unearned Income) Figure the tax on the amount on line 8 using the Tax Table, the Tax Computation Worksheet, the Qualified Dividends and Capital Gain Tax Worksheet (in the Form 1040, 1040A, or 1040NR instructions), the Schedule D Tax Worksheet (in the Schedule D instructions), or Schedule J (Form 1040), as follows. Handrblock free If line 8 does not include any net capital gain or qualified dividends, use the Tax Table or Tax Computation Worksheet to figure this tax. Handrblock free But if Schedule J, Income Averaging for Farmers and Fishermen, is used to figure the tax on the parent's return, use it to figure this tax. Handrblock free If line 8 includes any net capital gain or qualified dividends, use the Qualified Dividends and Capital Gain Tax Worksheet to figure this tax. Handrblock free For details, see the instructions for Form 8615, line 9. Handrblock free However, if the child, parent, or any other child has 28% rate gain or unrecaptured section 1250 gain, use the Schedule D Tax Worksheet. Handrblock free But if Schedule J is used to figure the tax on the parent's return, use it to figure this tax. Handrblock free Child files Form 2555 or 2555-EZ. Handrblock free   If line 8 includes any net capital gain or qualified dividends and the child, or any other child filing Form 8615, also files Form 2555 or 2555-EZ, use Using the Schedule D Tax Worksheet for line 9 tax, next, to figure the line 9 tax. Handrblock free Using the Schedule D Tax Worksheet for line 9 tax. Handrblock free    Use the Schedule D Tax Worksheet (in the Schedule D instructions) to figure the line 9 tax on Form 8615 if the child, parent, or any other child has unrecaptured section 1250 gain or 28% rate gain. Handrblock free If you must use the Schedule D Tax Worksheet, first complete any Schedule D and any actual Schedule D Tax Worksheet required for the child, parent, or any other child. Handrblock free Then figure the line 9 tax using another Schedule D Tax Worksheet. Handrblock free (Do not attach this Schedule D Tax Worksheet to the child's return. Handrblock free )   Complete this Schedule D Tax Worksheet as follows. Handrblock free On line 1, enter the amount from Form 8615, line 8. Handrblock free On line 2, enter the qualified dividends included on Form 8615, line 8. Handrblock free (See the earlier discussion for line 8. Handrblock free ) On line 3, enter the total of the amounts, if any, on line 4g of all Forms 4952 filed by the child, parent, or any other child. Handrblock free On line 4, enter the total of the amounts, if any, on line 4e of all Forms 4952 filed by the child, parent, or any other child. Handrblock free If applicable, include instead the smaller amount entered on the dotted line next to line 4e. Handrblock free On lines 5 and 6, follow the worksheet instructions. Handrblock free On line 7, enter the net capital gain included on Form 8615, line 8. Handrblock free (See the earlier discussion for line 8. Handrblock free ) On lines 8 through 10, follow the worksheet instructions. Handrblock free On line 11, enter zero if neither the child, nor the parent, nor any other child has unrecaptured section 1250 gain (Schedule D, line 19) or 28% rate gain (Schedule D, line 18). Handrblock free Otherwise, enter the amount of unrecaptured section 1250 gain and 28% rate gain included in the net capital gain on line 8 of Form 8615. Handrblock free Figure these amounts as explained later under Figuring unrecaptured section 1250 gain (line 11) and Figuring 28% rate gain (line 11). Handrblock free If the Foreign Earned Income Tax Worksheet was used to figure the parent's tax or the tax of any child, go to step 10 below. Handrblock free Otherwise, skip steps 10, 11, and 12 below, and go to step 13. Handrblock free Determine whether there is a line 8 capital gain excess as follows. Handrblock free Add the amounts on line 2 of all Foreign Earned Income Tax Worksheets completed by the parent or any child for whom Form 8615 is filed. Handrblock free (But for each child do not add more than the excess, if any, of the amount on line 5 of the child's Form 8615 over the child's taxable income on Form 1040, line 43; Form 1040A, line 27; or Form 1040NR, line 41. Handrblock free ) Subtract (a) from the amount on line 1 of this Schedule D Tax Worksheet. Handrblock free Subtract (b) from the amount on line 10 of this Schedule D Tax Worksheet. Handrblock free If the result is more than zero, that amount is the line 8 capital gain excess. Handrblock free If the result is zero or less, there is no line 8 capital gain excess. Handrblock free If there is no line 8 capital gain excess, skip step 12 below and go to step 13. Handrblock free If there is a line 8 capital gain excess, complete a second Schedule D Tax Worksheet as instructed above and in step 13, but in its entirety and with the following additional modifications. Handrblock free (These modifications are to be made only for purposes of filling out this additional Schedule D Tax Worksheet. Handrblock free ) Reduce the amount you would otherwise enter on line 9 (but not below zero) by the line 8 capital gain excess. Handrblock free Reduce the amount you would otherwise enter on line 6 (but not below zero) by any of the line 8 capital gain excess not used in (a) above. Handrblock free If the child, parent, or any other child has 28% rate gain, reduce the amount you would otherwise enter on line 8 of Worksheet 1 for Line 11 of the Schedule D Tax Worksheet – 28% Rate Gain (Line 9 Tax), shown later, (but not below zero) by the line 8 capital gain excess, and refigure the amount on line 11 of this Schedule D Tax Worksheet. Handrblock free If the child, parent, or any other child has unrecaptured section 1250 gain, reduce the amount you would otherwise enter on line 8 of Worksheet 2 for Line 11 of the Schedule D Tax Worksheet – Unrecaptured Section 1250 Gain (Line 9 Tax) (but not below zero) by the line 8 capital gain excess not used in 12(c), and refigure the amount on line 11 of this Schedule D Tax Worksheet. Handrblock free Complete lines 12 through 45 following the worksheet instructions. Handrblock free Use the parent's filing status to complete lines 15, 42, and 44. Handrblock free Enter the amount from line 45 of this Schedule D Tax Worksheet on Form 8615, line 9, and check the box on that line
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The Handrblock Free

Handrblock free 4. Handrblock free   Student Loan Interest Deduction Table of Contents Introduction Student Loan Interest DefinedQualified Student Loan Qualified Education Expenses Include As Interest Do Not Include As Interest When Must Interest Be Paid Can You Claim the DeductionNo Double Benefit Allowed Figuring the DeductionEffect of the Amount of Your Income on the Amount of Your Deduction Which Worksheet To Use Claiming the Deduction Introduction Generally, personal interest you pay, other than certain mortgage interest, is not deductible on your tax return. Handrblock free However, if your modified adjusted gross income (MAGI) is less than $75,000 ($155,000 if filing a joint return) there is a special deduction allowed for paying interest on a student loan (also known as an education loan) used for higher education. Handrblock free For most taxpayers, MAGI is the adjusted gross income as figured on their federal income tax return before subtracting any deduction for student loan interest. Handrblock free This deduction can reduce the amount of your income subject to tax by up to $2,500 in 2013. Handrblock free The student loan interest deduction is taken as an adjustment to income. Handrblock free This means you can claim this deduction even if you do not itemize deductions on Schedule A (Form 1040). Handrblock free This chapter explains: What type of loan interest you can deduct, Whether you can claim the deduction, What expenses you must have paid with the student loan, Who is an eligible student, How to figure the deduction, and How to claim the deduction. Handrblock free Table 4-1. Handrblock free Student Loan Interest Deduction at a Glance This table summarizes the features of the student loan interest deduction. Handrblock free Do not rely on this table alone. Handrblock free Refer to the text for complete details. Handrblock free Feature   Description Maximum benefit   You can reduce your income subject to tax by up to $2,500. Handrblock free Loan qualifications   Your student loan: •must have been taken out solely to pay qualified education expenses, and •cannot be from a related person or made under a qualified employer plan. Handrblock free Student qualifications   The student must be: •you, your spouse, or your dependent, and  •enrolled at least half-time in a degree program. Handrblock free Time limit on deduction   You can deduct interest paid during the remaining period of your student loan. Handrblock free Limit on modified adjusted gross income (MAGI)   $155,000 if married filing a joint return; $75,000 if single, head of household, or qualifying widow(er). Handrblock free Student Loan Interest Defined Student loan interest is interest you paid during the year on a qualified student loan. Handrblock free It includes both required and voluntary interest payments. Handrblock free Qualified Student Loan This is a loan you took out solely to pay qualified education expenses (defined later) that were: For you, your spouse, or a person who was your dependent when you took out the loan, Paid or incurred within a reasonable period of time before or after you took out the loan, and For education provided during an academic period for an eligible student. Handrblock free Loans from the following sources are not qualified student loans. Handrblock free A related person. Handrblock free A qualified employer plan. Handrblock free Your dependent. Handrblock free   Generally, your dependent is someone who is either a: Qualifying child, or Qualifying relative. Handrblock free You can find more information about dependents in Publication 501. Handrblock free Exceptions. Handrblock free   For purposes of the student loan interest deduction, there are the following exceptions to the general rules for dependents. Handrblock free An individual can be your dependent even if you are the dependent of another taxpayer. Handrblock free An individual can be your dependent even if the individual files a joint return with a spouse. Handrblock free An individual can be your dependent even if the individual had gross income for the year that was equal to or more than the exemption amount for the year ($3,900 for 2013). Handrblock free Reasonable period of time. Handrblock free   Qualified education expenses are treated as paid or incurred within a reasonable period of time before or after you take out the loan if they are paid with the proceeds of student loans that are part of a federal postsecondary education loan program. Handrblock free   Even if not paid with the proceeds of that type of loan, the expenses are treated as paid or incurred within a reasonable period of time if both of the following requirements are met. Handrblock free The expenses relate to a specific academic period, and The loan proceeds are disbursed within a period that begins 90 days before the start of that academic period and ends 90 days after the end of that academic period. Handrblock free   If neither of the above situations applies, the reasonable period of time usually is determined based on all the relevant facts and circumstances. Handrblock free Academic period. Handrblock free   An academic period includes a semester, trimester, quarter, or other period of study (such as a summer school session) as reasonably determined by an educational institution. Handrblock free In the case of an educational institution that uses credit hours or clock hours and does not have academic terms, each payment period can be treated as an academic period. Handrblock free Eligible student. Handrblock free   This is a student who was enrolled at least half-time in a program leading to a degree, certificate, or other recognized educational credential. Handrblock free Enrolled at least half-time. Handrblock free   A student was enrolled at least half-time if the student was taking at least half the normal full-time work load for his or her course of study. Handrblock free   The standard for what is half of the normal full-time work load is determined by each eligible educational institution. Handrblock free However, the standard may not be lower than any of those established by the U. Handrblock free S. Handrblock free Department of Education under the Higher Education Act of 1965. Handrblock free Related person. Handrblock free   You cannot deduct interest on a loan you get from a related person. Handrblock free Related persons include: Your spouse, Your brothers and sisters, Your half brothers and half sisters, Your ancestors (parents, grandparents, etc. Handrblock free ), Your lineal descendants (children, grandchildren, etc. Handrblock free ), and Certain corporations, partnerships, trusts, and exempt organizations. Handrblock free Qualified employer plan. Handrblock free   You cannot deduct interest on a loan made under a qualified employer plan or under a contract purchased under such a plan. Handrblock free Qualified Education Expenses For purposes of the student loan interest deduction, these expenses are the total costs of attending an eligible educational institution, including graduate school. Handrblock free They include amounts paid for the following items. Handrblock free Tuition and fees. Handrblock free Room and board. Handrblock free Books, supplies, and equipment. Handrblock free Other necessary expenses (such as transportation). Handrblock free The cost of room and board qualifies only to the extent that it is not more than the greater of: The allowance for room and board, as determined by the eligible educational institution, that was included in the cost of attendance (for federal financial aid purposes) for a particular academic period and living arrangement of the student, or The actual amount charged if the student is residing in housing owned or operated by the eligible educational institution. Handrblock free Eligible educational institution. Handrblock free   An eligible educational institution is any college, university, vocational school, or other postsecondary educational institution eligible to participate in a student aid program administered by the U. Handrblock free S. Handrblock free Department of Education. Handrblock free It includes virtually all accredited public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. Handrblock free   Certain educational institutions located outside the United States also participate in the U. Handrblock free S. Handrblock free Department of Education's Federal Student Aid (FSA) programs. Handrblock free   For purposes of the student loan interest deduction, an eligible educational institution also includes an institution conducting an internship or residency program leading to a degree or certificate from an institution of higher education, a hospital, or a health care facility that offers postgraduate training. Handrblock free   An educational institution must meet the above criteria only during the academic period(s) for which the student loan was incurred. Handrblock free The deductibility of interest on the loan is not affected by the institution's subsequent loss of eligibility. Handrblock free    The educational institution should be able to tell you if it is an eligible educational institution. Handrblock free Adjustments to Qualified Education Expenses You must reduce your qualified education expenses by the total amount paid for them with the following tax-free items. Handrblock free Employer-provided educational assistance. Handrblock free See chapter 11, Employer-Provided Educational Assistance . Handrblock free Tax-free distribution of earnings from a Coverdell education savings account (ESA). Handrblock free See Tax-Free Distributions in chapter 7, Coverdell Education Savings Account. Handrblock free Tax-free distribution of earnings from a qualified tuition program (QTP). Handrblock free See Figuring the Taxable Portion of a Distribution in chapter 8, Qualified Tuition Program. Handrblock free U. Handrblock free S. Handrblock free savings bond interest that you exclude from income because it is used to pay qualified education expenses. Handrblock free See chapter 10, Education Savings Bond Program . Handrblock free The tax-free part of scholarships and fellowships. Handrblock free See Tax-Free Scholarships and Fellowships in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Handrblock free Veterans' educational assistance. Handrblock free See Veterans' Benefits in chapter 1, Scholarships, Fellowships, Grants, and Tuition Reductions. Handrblock free Any other nontaxable (tax-free) payments (other than gifts or inheritances) received as educational assistance. Handrblock free Include As Interest In addition to simple interest on the loan, if all other requirements are met, the items discussed below can be student loan interest. Handrblock free Loan origination fee. Handrblock free   In general, this is a one-time fee charged by the lender when a loan is made. Handrblock free To be deductible as interest, a loan origination fee must be for the use of money rather than for property or services (such as commitment fees or processing costs) provided by the lender. Handrblock free A loan origination fee treated as interest accrues over the term of the loan. Handrblock free   Loan origination fees were not required to be reported on Form 1098-E, Student Loan Interest Statement, for loans made before September 1, 2004. Handrblock free If loan origination fees are not included in the amount reported on your Form 1098-E, you can use any reasonable method to allocate the loan origination fees over the term of the loan. Handrblock free The method shown in the example below allocates equal portions of the loan origination fee to each payment required under the terms of the loan. Handrblock free A method that results in the double deduction of the same portion of a loan origination fee would not be reasonable. Handrblock free Example. Handrblock free In August 2004, Bill took out a student loan for $16,000 to pay the tuition for his senior year of college. Handrblock free The lender charged a 3% loan origination fee ($480) that was withheld from the funds Bill received. Handrblock free Bill began making payments on his student loan in 2013. Handrblock free Because the loan origination fee was not included in his 2013 Form 1098-E, Bill can use any reasonable method to allocate that fee over the term of the loan. Handrblock free Bill's loan is payable in 120 equal monthly payments. Handrblock free He allocates the $480 fee equally over the total number of payments ($480 ÷ 120 months = $4 per month). Handrblock free Bill made 7 payments in 2013, so he paid $28 ($4 × 7) of interest attributable to the loan origination fee. Handrblock free To determine his student loan interest deduction, he will add the $28 to the amount of other interest reported to him on Form 1098-E. Handrblock free Capitalized interest. Handrblock free   This is unpaid interest on a student loan that is added by the lender to the outstanding principal balance of the loan. Handrblock free Capitalized interest is treated as interest for tax purposes and is deductible as payments of principal are made on the loan. Handrblock free No deduction for capitalized interest is allowed in a year in which no loan payments were made. Handrblock free Interest on revolving lines of credit. Handrblock free   This interest, which includes interest on credit card debt, is student loan interest if the borrower uses the line of credit (credit card) only to pay qualified education expenses. Handrblock free See Qualified Education Expenses , earlier. Handrblock free Interest on refinanced student loans. Handrblock free   This includes interest on both: Consolidated loans—loans used to refinance more than one student loan of the same borrower, and Collapsed loans—two or more loans of the same borrower that are treated by both the lender and the borrower as one loan. Handrblock free    If you refinance a qualified student loan for more than your original loan and you use the additional amount for any purpose other than qualified education expenses, you cannot deduct any interest paid on the refinanced loan. Handrblock free Voluntary interest payments. Handrblock free   These are payments made on a qualified student loan during a period when interest payments are not required, such as when the borrower has been granted a deferment or the loan has not yet entered repayment status. Handrblock free Example. Handrblock free The payments on Roger's student loan were scheduled to begin in June 2012, 6 months after he graduated from college. Handrblock free He began making payments as required. Handrblock free In September 2013, Roger enrolled in graduate school on a full-time basis. Handrblock free He applied for and was granted deferment of his loan payments while in graduate school. Handrblock free Wanting to pay down his student loan as much as possible, he made loan payments in October and November 2013. Handrblock free Even though these were voluntary (not required) payments, Roger can deduct the interest paid in October and November. Handrblock free Allocating Payments Between Interest and Principal The allocation of payments between interest and principal for tax purposes might not be the same as the allocation shown on the Form 1098-E or other statement you receive from the lender or loan servicer. Handrblock free To make the allocation for tax purposes, a payment generally applies first to stated interest that remains unpaid as of the date the payment is due, second to any loan origination fees allocable to the payment, third to any capitalized interest that remains unpaid as of the date the payment is due, and fourth to the outstanding principal. Handrblock free Example. Handrblock free In August 2012, Peg took out a $10,000 student loan to pay the tuition for her senior year of college. Handrblock free The lender charged a 3% loan origination fee ($300) that was withheld from the funds Peg received. Handrblock free The interest (5% simple) on this loan accrued while she completed her senior year and for 6 months after she graduated. Handrblock free At the end of that period, the lender determined the amount to be repaid by capitalizing all accrued but unpaid interest ($625 interest accrued from August 2012 through October 2013) and adding it to the outstanding principal balance of the loan. Handrblock free The loan is payable over 60 months, with a payment of $200. Handrblock free 51 due on the first of each month, beginning November 2013. Handrblock free Peg did not receive a Form 1098-E for 2013 from her lender because the amount of interest she paid did not require the lender to issue an information return. Handrblock free However, she did receive an account statement from the lender that showed the following 2013 payments on her outstanding loan of $10,625 ($10,000 principal + $625 accrued but unpaid interest). Handrblock free Payment Date   Payment   Stated Interest   Principal November 2013   $200. Handrblock free 51   $44. Handrblock free 27   $156. Handrblock free 24 December 2013   $200. Handrblock free 51   $43. Handrblock free 62   $156. Handrblock free 89 Totals   $401. Handrblock free 02   $87. Handrblock free 89   $313. Handrblock free 13 To determine the amount of interest that could be deducted on the loan for 2013, Peg starts with the total amount of stated interest she paid, $87. Handrblock free 89. Handrblock free Next, she allocates the loan origination fee over the term of the loan ($300 ÷ 60 months = $5 per month). Handrblock free A total of $10 ($5 of each of the two principal payments) should be treated as interest for tax purposes. Handrblock free Peg then applies the unpaid capitalized interest ($625) to the two principal payments in the order in which they were made, and determines that the remaining amount of principal of both payments is treated as interest for tax purposes. Handrblock free Assuming that Peg qualifies to take the student loan interest deduction, she can deduct $401. Handrblock free 02 ($87. Handrblock free 89 + $10 + $303. Handrblock free 13). Handrblock free For 2014, Peg will continue to allocate $5 of the loan origination fee to the principal portion of each monthly payment she makes and treat that amount as interest for tax purposes. Handrblock free She also will apply the remaining amount of capitalized interest ($625 − $303. Handrblock free 13 = $321. Handrblock free 87) to the principal payments in the order in which they are made until the balance is zero, and treat those amounts as interest for tax purposes. Handrblock free Do Not Include As Interest You cannot claim a student loan interest deduction for any of the following items. Handrblock free Interest you paid on a loan if, under the terms of the loan, you are not legally obligated to make interest payments. Handrblock free Loan origination fees that are payments for property or services provided by the lender, such as commitment fees or processing costs. Handrblock free Interest you paid on a loan to the extent payments were made through your participation in the National Health Service Corps Loan Repayment Program (the “NHSC Loan Repayment Program”) or certain other loan repayment assistance programs. Handrblock free For more information, see Student Loan Repayment Assistance in chapter 5, Student Loan Cancellations and Repayment Assistance. Handrblock free When Must Interest Be Paid You can deduct all interest you paid during the year on your student loan, including voluntary payments, until the loan is paid off. Handrblock free Can You Claim the Deduction Generally, you can claim the deduction if all of the following requirements are met. Handrblock free Your filing status is any filing status except married filing separately. Handrblock free No one else is claiming an exemption for you on his or her tax return. Handrblock free You are legally obligated to pay interest on a qualified student loan. Handrblock free You paid interest on a qualified student loan. Handrblock free Claiming an exemption for you. Handrblock free   Another taxpayer is claiming an exemption for you if he or she lists your name and other required information on his or her Form 1040 (or Form 1040A), line 6c, or Form 1040NR, line 7c. Handrblock free Example 1. Handrblock free During 2013, Josh paid $600 interest on his qualified student loan. Handrblock free Only he is legally obligated to make the payments. Handrblock free No one claimed an exemption for Josh for 2013. Handrblock free Assuming all other requirements are met, Josh can deduct the $600 of interest he paid on his 2013 Form 1040 or 1040A. Handrblock free Example 2. Handrblock free During 2013, Jo paid $1,100 interest on her qualified student loan. Handrblock free Only she is legally obligated to make the payments. Handrblock free Jo's parents claimed an exemption for her on their 2013 tax return. Handrblock free In this case, neither Jo nor her parents may deduct the student loan interest Jo paid in 2013. Handrblock free Interest paid by others. Handrblock free   If you are the person legally obligated to make interest payments and someone else makes a payment of interest on your behalf, you are treated as receiving the payments from the other person and, in turn, paying the interest. Handrblock free Example 1. Handrblock free Darla obtained a qualified student loan to attend college. Handrblock free After Darla's graduation from college, she worked as an intern for a nonprofit organization. Handrblock free As part of the internship program, the nonprofit organization made an interest payment on behalf of Darla. Handrblock free This payment was treated as additional compensation and reported in box 1 of her Form W-2. Handrblock free Assuming all other qualifications are met, Darla can deduct this payment of interest on her tax return. Handrblock free Example 2. Handrblock free Ethan obtained a qualified student loan to attend college. Handrblock free After graduating from college, the first monthly payment on his loan was due in December. Handrblock free As a gift, Ethan's mother made this payment for him. Handrblock free No one is claiming a dependency exemption for Ethan on his or her tax return. Handrblock free Assuming all other qualifications are met, Ethan can deduct this payment of interest on his tax return. Handrblock free No Double Benefit Allowed You cannot deduct as interest on a student loan any amount that is an allowable deduction under any other provision of the tax law (for example, as home mortgage interest). Handrblock free Figuring the Deduction Your student loan interest deduction for 2013 is generally the smaller of: $2,500, or The interest you paid in 2013. Handrblock free However, the amount determined above may be gradually reduced (phased out) or eliminated based on your filing status and MAGI as explained below. Handrblock free You can use Worksheet 4-1. Handrblock free Student Loan Interest Deduction Worksheet (at the end of this chapter) to figure both your MAGI and your deduction. Handrblock free Form 1098-E. Handrblock free   To help you figure your student loan interest deduction, you should receive Form 1098-E. Handrblock free Generally, an institution (such as a bank or governmental agency) that received interest payments of $600 or more during 2013 on one or more qualified student loans must send Form 1098-E (or acceptable substitute) to each borrower by January 31, 2014. Handrblock free   For qualified student loans taken out before September 1, 2004, the institution is required to include on Form 1098-E only payments of stated interest. Handrblock free Other interest payments, such as certain loan origination fees and capitalized interest, may not appear on the form you receive. Handrblock free However, if you pay qualifying interest that is not included on Form 1098-E, you can also deduct those amounts. Handrblock free See Allocating Payments Between Interest and Principal , earlier. Handrblock free    The lender may ask for a completed Form W-9S, or similar statement to obtain the borrower's name, address, and taxpayer identification number. Handrblock free The form may also be used by the borrower to certify that the student loan was incurred solely to pay for qualified education expenses. Handrblock free Effect of the Amount of Your Income on the Amount of Your Deduction The amount of your student loan interest deduction is phased out (gradually reduced) if your MAGI is between $60,000 and $75,000 ($125,000 and $155,000 if you file a joint return). Handrblock free You cannot take a student loan interest deduction if your MAGI is $75,000 or more ($155,000 or more if you file a joint return). Handrblock free Modified adjusted gross income (MAGI). Handrblock free   For most taxpayers, MAGI is adjusted gross income (AGI) as figured on their federal income tax return before subtracting any deduction for student loan interest. Handrblock free However, as discussed below, there may be other modifications. Handrblock free Table 4-2 shows how the amount of your MAGI can affect your student loan interest deduction. Handrblock free Table 4-2. Handrblock free Effect of MAGI on Student Loan Interest Deduction IF your filing status is. Handrblock free . Handrblock free . Handrblock free AND your MAGI is. Handrblock free . Handrblock free . Handrblock free THEN your student loan interest deduction is. Handrblock free . Handrblock free . Handrblock free single,  head of household, or qualifying widow(er) not more than $60,000 not affected by the phaseout. Handrblock free more than $60,000  but less than $75,000 reduced because of the phaseout. Handrblock free $75,000 or more eliminated by the phaseout. Handrblock free married filing joint return not more than $125,000 not affected by the phaseout. Handrblock free more than $125,000 but less than $155,000 reduced because of the phaseout. Handrblock free $155,000 or more eliminated by the phaseout. Handrblock free MAGI when using Form 1040A. Handrblock free   If you file Form 1040A, your MAGI is the AGI on line 22 of that form figured without taking into account any amount on line 18 (student loan interest deduction) and line 19 (tuition and fees deduction). Handrblock free MAGI when using Form 1040. Handrblock free   If you file Form 1040, your MAGI is the AGI on line 38 of that form figured without taking into account any amount on line 33 (student loan interest deduction), line 34 (tuition and fees deduction), or line 35 (domestic production activities deduction), and modified by adding back any: Foreign earned income exclusion, Foreign housing exclusion, Foreign housing deduction, Exclusion of income by bona fide residents of American Samoa, and Exclusion of income by bona fide residents of Puerto Rico. Handrblock free MAGI when using Form 1040NR. Handrblock free   If you file Form 1040NR, your MAGI is the AGI on line 36 of that form figured without taking into account any amount on line 33 (student loan interest deduction) and line 34 (domestic production activities deduction). Handrblock free MAGI when using Form 1040NR-EZ. Handrblock free   If you file Form 1040NR-EZ, your MAGI is the AGI on line 10 of that form figured without taking into account any amount on line 9 (student loan interest deduction). Handrblock free Phaseout. Handrblock free   If your MAGI is within the range of incomes where the credit must be reduced, you must figure your reduced deduction. Handrblock free To figure the phaseout, multiply your interest deduction (before the phaseout) by a fraction. Handrblock free The numerator is your MAGI minus $60,000 ($125,000 in the case of a joint return). Handrblock free The denominator is $15,000 ($30,000 in the case of a joint return). Handrblock free Subtract the result from your deduction (before the phaseout) to give you the amount you can deduct. Handrblock free Example 1. Handrblock free During 2013 you paid $800 interest on a qualified student loan. Handrblock free Your 2013 MAGI is $145,000 and you are filing a joint return. Handrblock free You must reduce your deduction by $533, figured as follows. Handrblock free   $800 × $145,000 − $125,000  $30,000 = $533   Your reduced student loan interest deduction is $267 ($800 − $533). Handrblock free Example 2. Handrblock free The facts are the same as in Example 1 except that you paid $2,750 interest. Handrblock free Your maximum deduction for 2013 is $2,500. Handrblock free You must reduce your maximum deduction by $1,667, figured as follows. Handrblock free   $2,500 × $145,000 − $125,000  $30,000 = $1,667   In this example, your reduced student loan interest deduction is $833 ($2,500 − $1,667). Handrblock free Which Worksheet To Use Generally, you figure the deduction using the Student Loan Interest Deduction Worksheet in the instructions for Form 1040, Form 1040A, or Form 1040NR. Handrblock free However, if you are filing Form 2555, Foreign Earned Income, Form 2555-EZ, Foreign Earned Income Exclusion, or Form 4563, Exclusion of Income for Bona Fide Residents of American Samoa, or you are excluding income from sources within Puerto Rico, you must complete Worksheet 4-1. Handrblock free Student Loan Interest Deduction Worksheet at the end of this chapter. Handrblock free Claiming the Deduction The student loan interest deduction is an adjustment to income. Handrblock free To claim the deduction, enter the allowable amount on line 33 (Form 1040), line 18 (Form 1040A), line 33 (Form 1040NR), or line 9 (Form 1040NR-EZ). Handrblock free Worksheet 4-1. Handrblock free Student Loan Interest Deduction Worksheet Use this worksheet instead of the worksheet in the Form 1040 instructions if you are filing Form 2555, 2555-EZ, or 4563, or you are excluding income from sources within Puerto Rico. Handrblock free Before using this worksheet, you must complete Form 1040, lines 7 through 32, plus any amount to be entered on the dotted line next to line 36. Handrblock free 1. Handrblock free Enter the total interest you paid in 2013 on qualified student loans. Handrblock free Do not enter  more than $2,500 1. Handrblock free   2. Handrblock free Enter the amount from Form 1040, line 22 2. Handrblock free       3. Handrblock free Enter the total of the amounts from Form 1040,  lines 23 through 32 3. Handrblock free           4. Handrblock free Enter the total of any amounts entered on the dotted line next to Form 1040, line 36 4. Handrblock free           5. Handrblock free Add lines 3 and 4 5. Handrblock free       6. Handrblock free Subtract line 5 from line 2 6. Handrblock free       7. Handrblock free Enter any foreign earned income exclusion and/or housing  exclusion (Form 2555, line 45, or Form 2555-EZ, line 18) 7. Handrblock free       8. Handrblock free Enter any foreign housing deduction (Form 2555, line 50) 8. Handrblock free       9. Handrblock free Enter the amount of income from Puerto Rico you are excluding 9. Handrblock free       10. Handrblock free Enter the amount of income from American Samoa  you are excluding (Form 4563, line 15) 10. Handrblock free       11. Handrblock free Add lines 6 through 10. Handrblock free This is your modified adjusted gross income 11. Handrblock free   12. Handrblock free Enter the amount shown below for your filing status 12. Handrblock free     •Single, head of household, or qualifying widow(er)—$60,000       •Married filing jointly—$125,000     13. Handrblock free Is the amount on line 11 more than the amount on line 12?       □ No. Handrblock free Skip lines 13 and 14, enter -0- on line 15, and go to line 16. Handrblock free       □ Yes. Handrblock free Subtract line 12 from line 11 13. Handrblock free   14. Handrblock free Divide line 13 by $15,000 ($30,000 if married filing jointly). Handrblock free Enter the result as a decimal  (rounded to at least three places). Handrblock free If the result is 1. Handrblock free 000 or more, enter 1. Handrblock free 000 14. Handrblock free . Handrblock free 15. Handrblock free Multiply line 1 by line 14 15. Handrblock free   16. Handrblock free Student loan interest deduction. Handrblock free Subtract line 15 from line 1. Handrblock free Enter the result here  and on Form 1040, line 33. Handrblock free Do not include this amount in figuring any other  deduction on your return (such as on Schedule A, C, E, etc. Handrblock free ) 16. Handrblock free   Prev  Up  Next   Home   More Online Publications