Form 8814 has more tax than filing tax return for dependent

I must not have been paying attention...

I am preparing a tax return for the parents and included the child's investment income (mostly qualified dividends and capital gains) on the parent's return using Form 8814. It was approx. $5,000. The parent's Fed tax went up $600 due to the Form 8814.

The parent's e-mailed and said the daughter received a W-2 and will send it to me. So, I remove the 8814 and work up the child's tax return - still waiting for the W-2. I have the child as a dependent and have done the Form 8615. The child's Fed tax is only $50. It appears she gets the first $4,750 at the 0% tax rate.

Is that correct?

In my experience, less tax is paid on child's return with 8615 than filing parents' return with 8814.

Yes, it is almost always so, because marginal tax rates of parents and the child are different.

I kinda always thought the point of the 8615 was to tax the kids at the parent's rate, therefore, no difference between the 8814 & 8615.

I feel like a rookie. Is there a breakeven point where it makes sense to scratch the 8814 and do a kid's tax return?

I haven't analyzed it in a long time. I just do a kid return.

I kinda always thought the point of the 8615 was to tax the kids at the parent's rate, therefore, no difference between the 8814 & 8615.

I feel like a rookie. Is there a breakeven point where it makes sense to scratch the 8814 and do a kid's tax return?

I haven't done one in a long time either, but my understanding is the same as yours.

Isn't the kiddie tax rate the same as trust? I've never done one but I believe that was. TCJA change.

Isn't the kiddie tax rate the same as trust

It was under TCJA but was later retroactively changed back to pre-TCJA by the SECURE Act.

Thanks Howard.

I wasted some time today and played around with the tax software. I am sure this is not news to some of you, but wanted to share what I discovered.

Starting in 2018, the child uses the trust tax rates. A trust allows 0% tax on the first $2,650 of taxable income comprised of LTCG.

When a child has taxable income from unearned income, the first $1,100 is excluded. The next $1,100 is taxed at the child's rate. Which in this case (LTCG) will be 0%.

After the first $2,200, the child then gets to use the trust rules which allows another $2,650 at the 0% rate.

This means that the first $4,850 of LTCG income is taxed at 0% if the child files their own tax return.

The Form 8814 produces the following results on the first $4,850 (using parents with $250K AGI):
* The first $1,100 is tax free
* The next $1,100 is taxed at 10% (child's bracket)
* The next $2,650 is taxed at 15% + 3.8% NIIT
Total tax = $608

For 2020, we go back to the old rules. In that case the child's tax return will have total tax of $398* on the $4,850. This is just a $210 savings over filing the 8814. At that point, not sure if it makes sense to generate another tax return.

* The $398 = ($2,200 x 0%) + ($2,650 x 15%)