Should I Use Form 8814 to Report My Child’s Investment Income?

If your child is under 19 (or under 24 as a full-time student), earned less than $13,500 in interest and dividends during 2025, and had no other income, you can use Form 8814 to report that income on your own return instead of filing a separate return for your child. According to the IRS, this election eliminates the need for your child to file their own Form 1040.

The decision to use Form 8814 is not always straightforward. While it simplifies filing, it can cost you more in taxes:

Up to $135 in additional tax on qualified dividends and capital gains that would be taxed at 0% on your child’s return
Higher AGI on your return, which can reduce the Child Tax Credit, education credits, and other income-based benefits
Lost deductions your child could take on their own return

Should You Report Your Child’s Investment Income on Your Return?

We’ll review your child’s income and determine whether using Form 8814 actually lowers your total family tax bill.

Here’s how to decide whether this election makes sense for your family, and why expats face additional complexity that most guidance overlooks.

What Does Form 8814 Do?

Form 8814, “Parents’ Election to Report Child’s Interest and Dividends,” lets you include your child’s interest, ordinary dividends, and capital gain distributions directly on your Form 1040. The IRS created this election so families with children who have modest investment income can avoid filing a separate return.

A separate Form 8814 is required for each child. You can elect to include one child’s income and file separately for another, so you are not locked into the same treatment for all your children.

Important

Form 8814 only applies to interest and dividend income. If your child has any earned income (wages, self-employment), rental income, or other types of income, the election is not available, and your child must file their own return.

Who Qualifies to Use Form 8814?

Your child must meet all of these requirements for the 2025 tax year:

Requirement	Details
Age	Under 19 at year-end, or under 24 if a full-time student
Income type	Interest, dividends, and capital gain distributions only (including Alaska Permanent Fund dividends)
Income amount	Gross income less than $13,500
No estimated payments	No estimated tax payments were made for the child during the year
No prior overpayment applied	No refund from a prior year applied to the child’s current year
No joint return	Child does not file a joint return
No backup withholding	No federal income tax withheld under backup withholding rules

You qualify to make this election if you file Form 1040, 1040-SR, or 1040-NR and you are the parent with the higher taxable income (if filing separately from the child’s other parent). For divorced or separated parents, the custodial parent makes the election.

How Does the Kiddie Tax Work with Form 8814?

The kiddie tax is designed to prevent parents from shifting investment income to children to take advantage of lower tax brackets. Here is how it applies for the 2025 tax year:

Child’s Unearned Income	How It’s Taxed
First $1,350	Not taxed
$1,350 to $2,700	Taxed at the child’s rate (typically 10%)
Above $2,700	Taxed at the parents’ marginal rate

When you use Form 8814, the first $1,350 of your child’s income is tax-free, the next $1,350 is taxed at 10% (up to $135), and anything above $2,700 is added to your taxable income and taxed at your rate.

The key difference: on a child’s own return, qualified dividends and long-term capital gains in the first $2,700 may be taxed at 0%. When reported through Form 8814, that same income is taxed at 10%, costing up to $135 more. For families with larger amounts of child investment income, the difference grows.

When Does Form 8814 Make Sense?

Form 8814 works best in straightforward situations with small amounts of investment income. Here is a decision framework:

Scenario	Use Form 8814?	Why
Child has less than $1,350 in interest/dividends	Yes	Income is below the standard deduction; no tax either way, and one fewer return
Child has $1,350 to $2,700 in dividends (all qualified)	Maybe not	Those dividends may be taxed at 0% on the child’s own return vs. 10% on yours
Child has more than $2,700 in investment income	Analyze carefully	The AGI increase on your return could reduce credits and deductions
You are near the Child Tax Credit phase-out ($400K joint / $200K single)	Probably not	Adding even $2,000 to your AGI could cost $100+ in lost credits
You have multiple children with investment income	Analyze each child	You can elect 8814 for some children and not others

What Are the Expat-Specific Complications?

For American families living abroad, Form 8814 involves several layers of complexity that domestic filers do not face:

Foreign Account Reporting for Your Child

If your child has a foreign bank or investment account, the IRS Form 8814 instructions require you to complete Schedule B, Part III (Foreign Accounts and Trusts) on your return. Including your child’s foreign account on your return also means you may need to report it on Form 8938 (FATCA) if the combined foreign asset values on your return exceed the reporting thresholds.

Your child’s foreign accounts also count toward FBAR filing requirements. If your child has authority over or interest in foreign accounts that exceed $10,000 in aggregate at any point during the year, an FBAR must be filed for the child regardless of whether you use Form 8814.

Foreign Tax Withheld on Your Child’s Dividends

If foreign taxes were withheld on your child’s dividends or interest (common with foreign brokerage accounts), you can claim a Foreign Tax Credit on your return for those taxes when using Form 8814. This requires Form 1116 and proper sourcing of the income, which adds complexity to the filing.

PFIC Complications

If your child holds shares in a foreign mutual fund, ETF, or investment fund, those holdings may be classified as PFICs (Passive Foreign Investment Companies). PFIC income is subject to punitive tax treatment and requires complex reporting on Form 8621. PFIC income is not eligible for Form 8814, and your child would need to file their own return.

Currency Conversion

All amounts on Form 8814 must be reported in U.S. dollars. If your child’s accounts are denominated in foreign currency, every interest payment and dividend must be converted at the appropriate exchange rate for the date received.

Impact on FEIE and FTC Strategy

Adding your child’s investment income through Form 8814 increases your AGI. While this does not directly affect your ability to claim the Foreign Earned Income Exclusion ($130,000 for the 2025 tax year), the higher AGI can reduce other benefits that depend on income thresholds, including education credits, the child care credit, and IRA deduction limits.

How Did the OBBBA Change Things for Families?

The One Big Beautiful Bill Act (signed July 4, 2025) introduced several new deductions and credits that phase out based on AGI. If you qualify for the new deduction for qualified tips, the deduction for qualified overtime compensation, or the senior deduction ($4,000 for taxpayers 65+), adding your child’s investment income through Form 8814 increases your AGI and could reduce these benefits. The IRS Form 8814 instructions specifically list these new deductions as potentially affected.

The OBBBA also increased the Child Tax Credit to $2,200 per qualifying child for the 2025 tax year. The credit begins phasing out at $400,000 AGI for joint filers and $200,000 for single filers. The higher credit value means even a small AGI increase from Form 8814 could have a meaningful dollar impact if you are near a phase-out threshold.

Form 8814 vs. Filing a Separate Return for Your Child

Factor	Form 8814 (Parents’ Return)	Child’s Own Return (Form 8615)
Number of returns	One return for the family	Separate return for the child
Tax on first $2,700 of qualified dividends	Up to $135 (10% on $1,350)	Potentially $0 (0% capital gains rate)
Effect on parent’s AGI	Increases AGI	No effect on parents’ AGI
Child’s deductions	Lost (blind deduction, early withdrawal penalty, charitable)	Available on the child’s return
Foreign tax credit on child’s dividends	Claimed on parents’ Form 1116	Claimed on child’s Form 1116
FBAR/FATCA reporting	May trigger additional reporting on parents’ return	Separate from parents’ filing
Filing complexity	Simpler (one return)	More forms but potentially lower total tax

Let Greenback Handle the Analysis

The Form 8814 decision involves more than just comparing two tax calculations. For expat families, the interaction between your child’s foreign accounts, FBAR and FATCA reporting, potential PFIC exposure, foreign tax credits on withheld dividends, and the AGI impact on your family’s credits and deductions requires careful analysis.

Our CPAs routinely handle Form 8814 elections as part of federal tax return preparation for expat families. We compare the total family tax under both approaches and recommend the one that saves you the most while keeping you fully compliant with all U.S. reporting requirements.

If you’re an expat parent, we can help with your family’s unique filing needs. Learn more about how we help Americans living abroad.

No matter how complex your family’s tax situation is, you’ll have peace of mind knowing your taxes were done right. Have questions? Contact us, and one of our Customer Champions will be happy to help. If you’re ready to be matched with a Greenback accountant, click the get started button below.

Choose the Option That Minimizes Your Family’s Tax

We’ll calculate whether adding your child’s investment income to your return saves money or increases your tax liability.

This article is for informational purposes only and does not constitute legal or tax advice. The decision to use Form 8814 depends on your family’s specific income, credits, deductions, and foreign account situation. For guidance on your specific situation, contact Greenback to speak with an expat tax specialist.

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