IRS Form 8814: Should You Report Your Child’s Investment Income on Your Return?
- What Does Form 8814 Do?
- Who Qualifies to Use Form 8814?
- How Does the Kiddie Tax Work with Form 8814?
- When Does Form 8814 Make Sense?
- What Are the Expat-Specific Complications?
- How Did the OBBBA Change Things for Families?
- Form 8814 vs. Filing a Separate Return for Your Child
- Let Greenback Handle the Analysis
- Related Resources
What Is Form 8814?
Form 8814, “Parents’ Election to Report Child’s Interest and Dividends,” is an IRS form that allows parents to report a child’s unearned income, such as interest, dividends, and capital gain distributions, directly on their own Form 1040, 1040-SR, or 1040-NR.
A common scenario is a custodial brokerage account (often opened by a grandparent) that generates dividends or capital gains distributions during the year.
Without it, a child who earns investment income above a certain threshold is required to file their own tax return. Form 8814 lets you include that income on your return instead.
2025/2026 Income Limits at a Glance
When you use Form 8814, your child’s investment income doesn’t all get taxed the same way. The IRS applies it in tiers:
| Child’s Investment Income | How It’s Taxed |
|---|---|
| First $1,350 | Not taxed |
| Next $1,350 (up to $2,700 total) | Taxed at the child’s rate (typically 10%) |
| $2,700 – $13,499 | Taxed at your rate, on your return |
| $13,500 or more | Form 8814 not available — child must file their own return |
This tiered treatment, where your child’s investment income above a certain threshold is taxed at your rate rather than theirs, is sometimes called the kiddie tax. Form 8814 is one of two ways to handle it.
For small custodial accounts generating modest dividends, the tax hit is minimal or zero. Once your child’s investment income crosses $2,700, though, it gets added to your return and taxed at whatever rate you pay, and not at your child’s lower rate. That’s the core trade-off, and it’s why the decision isn’t automatic.
If your child’s investment income is approaching $13,500, filing a separate return almost always produces a better outcome. At that level, your child’s lower tax brackets (applied to the full amount) will typically beat having it all taxed at your marginal rate.
Should You Report Your Child’s Investment Income on Your Return?
Who Qualifies to Use Form 8814?
Your child must meet all of the following requirements:
| 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, typically from a custodial brokerage account (UGMA/UTMA). Does not include wages, self-employment income, or other earned income. |
| Income amount | Gross income less than $13,500 for the tax year |
| No estimated payments | No estimated tax payments were made to the IRS under the child’s Social Security number during the year |
| No prior overpayment applied | No refund from a prior year was applied to the child’s current year tax bill |
| No joint return | Child does not file a joint return |
| No backup withholding | No federal income tax was withheld from the child’s investment income under backup withholding rules. Check Box 4 on any 1099 the child received. If there’s an amount there, Form 8814 is not available. |
On the estimated payments and prior overpayment conditions: these rarely apply to children with custodial accounts. If you’re unsure, check whether any payments were ever submitted to the IRS under your child’s Social Security number, your tax preparer or IRS Online Account can confirm this.
Also note, you can make this election for some children and not others, there’s no requirement to treat all your children the same way.
If you’re not filing jointly with your child’s other parent: the parent the child lived with for more days during the year is the one who makes the Form 8814 election. If the time was split equally, the parent with the higher adjusted gross income makes the election.
Benefits and Drawbacks of using IRS Form 8814
Form 8814 isn’t automatically the right choice. Run the numbers before you decide.
Reasons to use it
- Simplified filing. One return instead of two, means lower preparation costs, less paperwork, and one less deadline to track.
- The first $1,350 is tax-free. For small custodial accounts generating modest dividends, the additional tax on your return may be minimal or zero.
Reasons to think twice
- Your tax rate applies, not your child’s. Children with investment income only are often in a lower bracket than their parents. Filing a separate return for your child could produce a meaningfully lower tax bill for the family overall, especially if the income includes qualified dividends or capital gain distributions, which are taxed at preferential rates.
- Certain deductions are lost. If your child’s custodial account has investment-related expenses, e.g., if a prior-year loss is carried forward, those can only be claimed on a separate return. Form 8814 eliminates that option.
- Your AGI increases. Adding your child’s income to your return raises your adjusted gross income, which can reduce income-based benefits, like the Child Tax Credit, education credits, and other deductions. If you’re close to a phase-out threshold for any of these, that’s worth calculating before you decide.
When your child’s investment income is small (generally under $3,000) and you’re not in a high bracket, Form 8814 usually makes sense. As the income grows or your bracket rises, filing separately often produces a better outcome.
How the One Big Beautiful Bill Act (OBBBA) Affects Your Decision
The One Big Beautiful Bill Act (OBBBA), signed July 4, 2025, introduced several new deductions and credits that phase out based on AGI. If you’re considering Form 8814, it’s worth checking whether any of these apply to your family before you elect, because adding your child’s investment income to your return could reduce benefits you’d otherwise qualify for.
New deductions that may be affected:
- Deduction for qualified tips
- Deduction for qualified overtime compensation
- Senior deduction ($4,000 for taxpayers 65 and older)
The IRS Form 8814 instructions specifically list these as potentially affected by the AGI increase that comes with making this election.
Child Tax Credit: The OBBBA 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 modest AGI increase from Form 8814 could have a big dollar impact if you’re near a phase-out threshold, which is worth calculating before you file.
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.
How to Complete Form 8814
Step 1: Confirm eligibility.
Check every requirement in the qualifying section above before proceeding. If your child fails any condition, including having any earned income, or estimated payments made in their name, you’ll need to file a separate return for them instead.
Step 2: Run both scenarios.
Calculate your total family tax liability under Form 8814 versus a separate return for your child. If your child’s investment income is under $2,700, Form 8814 will almost always win on simplicity. Above that, run the numbers, or ask your preparer to.
Step 3: Complete the form.
File a separate Form 8814 for each child whose income you’re electing to report. You can download Form 8814 directly from the IRS website. You’ll need:
- The child’s name and Social Security number
- Total interest and dividend income received (from the child’s 1099-INT and 1099-DIV)
- Calculation of any additional tax owed
Step 4: Attach to your 1040.
Include the completed Form 8814 with your return. Report the resulting amount on Schedule 1 (Form 1040), line 8z, and note “Form 8814” next to the entry.
When to File a Separate Return Instead
Form 8814 isn’t the right call in every situation. Consider filing a separate return for your child, using Form 8615, if:
- Your child has any earned income. Wages, self-employment income, or any income beyond interest, dividends, and capital gain distributions disqualifies Form 8814 entirely. A summer job or babysitting income changes the calculation, so be sure to check this first.
- Your child’s investment income is growing. As it approaches the $13,500 limit, your child’s lower tax brackets applied to the full amount will typically beat having it taxed at your marginal rate. If the account is growing year over year, model a separate return sooner rather than later.
- Your child has investment-related deductions. These can only be claimed on a separate return, Form 8814 eliminates that option.
- Your AGI is close to a phase-out threshold. If adding your child’s income would push you over the limit for the Child Tax Credit, education credits, financial aid eligibility, or other income-sensitive benefits, a separate return is likely the better call.
Related Reading: US Tax Benefits for Children Studying Abroad
Form 8814 vs. Filing a Separate Return for Your Child (Form 8615)
| 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 |
Living Abroad? What Expat Parents Need to Know About Form 8814
American families living abroad can use Form 8814 under the same rules as any other US parent, but a few additional considerations apply:
Report Foreign Investment Income in US Dollars
Any interest, dividends, or capital gain distributions your child earned in a foreign currency must be converted to US dollars using the IRS annual average exchange rate for the tax year.
Check Whether FBAR Filing Is Required
If your child held foreign financial accounts that exceeded $10,000 at any point during the year, FBAR filing obligations apply, separately from and regardless of whether you use Form 8814.
Watch Your AGI If You’re Using the Foreign Tax Credit
Adding your child’s investment income to your return won’t affect your Foreign Earned Income Exclusion claim. But if you’re using the Foreign Tax Credit strategy instead, the AGI increase can affect how much credit you’re able to claim. Run the numbers before you elect.
Form 8938 and FATCA May Apply
If your child held significant foreign financial assets, they may be subject to FATCA reporting requirements, filed via Form 8938. This is separate from FBAR and carries different thresholds and penalties for non-compliance.
Related Article: FBAR vs. FATCA – What’s the Difference?
Watch for PFICs
If your child’s custodial account holds foreign mutual funds or ETFs, those investments may be classified as Passive Foreign Investment Companies (PFICs) under US tax law. PFIC income is taxed under a separate, more complex set of rules and requires its own reporting on Form 8621. This is one area where professional guidance is strongly recommended before you file.
Impact on FEIE and FTC Strategy
Adding your child’s investment income through Form 8814 increases your AGI. This won’t directly affect your ability to claim the Foreign Earned Income Exclusion ($130,000 for 2025), because the FEIE is calculated separately. But the higher AGI can reduce other benefits tied to income thresholds, including education credits, the child care credit, and IRA deduction limits. If you’re using the Foreign Tax Credit strategy instead of the FEIE, the AGI increase may also affect how much credit you’re able to claim. Be sure to run the numbers before you elect.
When It’s Worth Getting Professional Help
For most families with a small custodial account generating modest dividends, Form 8814 is a straightforward decision. But if your situation involves multiple children, foreign accounts, PFIC exposure, or uncertainty about how the election interacts with your FATCA reporting obligations or foreign tax credit strategy, the analysis gets more complex quickly.
Greenback’s CPAs work with expat families on exactly this kind of multi-variable filing decision, comparing total family tax under both approaches and recommending the option that saves the most while keeping you fully compliant. Learn more about how we help Americans living abroad, or create an account to get started.
Choose the Option That Minimizes Your Family’s Tax
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.
Frequently Asked Questions About Form 8814
Yes, having a foreign bank account doesn’t disqualify your child from Form 8814, as long as the income meets the other requirements (interest and dividends only, under $13,500). However, if the account exceeded $10,000 at any point during the year, FBAR filing is required separately regardless of which filing method you choose. FATCA reporting via Form 8938 may also apply.
If your child had income above the filing threshold and neither a separate return was filed nor Form 8814 was used, the income was likely underreported. The IRS can assess penalties and interest on any tax owed. If this applies to a prior year, it’s worth addressing proactively, an expat tax professional can help you file a late or amended return and assess whether any penalty abatement applies.
Yes. The election is made annually and there’s no requirement to be consistent year over year. If your child’s investment income grows significantly, or your own tax situation changes, you can switch approaches. Just run both scenarios each year before you decide rather than assuming last year’s answer still applies.
If your child’s gross income is below the filing threshold, which is $1,350 for 2025/2026, they’re generally not required to file a return, and Form 8814 isn’t necessary either. However, if any tax was withheld from the child’s investment income (check Box 4 on their 1099), filing a return to claim a refund may be worthwhile even if it’s not strictly required.
Related Resources
- Child Tax Credit for Expats: How to Claim Up to $2,200 Per Child
- Credit for Other Dependents: $500 Per Dependent for Expats
- Can U.S. Expats Claim the Child Care Credit While Living Abroad?
- Foreign Tax Credit Guide
- Form 1116: How to Claim Your Foreign Tax Credit
- FBAR vs FATCA: Which Foreign Account Reporting Do I Need?
- What Is FATCA? Foreign Account Tax Compliance Act Explained
- PFIC Reporting: What Expats Need to Know About Foreign Mutual Funds
- Foreign Earned Income Exclusion: Your Complete Guide
- Common Expat Tax Forms You Need to Know
