Kiddie Tax – When the Child Files the Return
Like federal law, California requires certain children with investment income above $1,900 to be taxed at the parent’s tax rate if the parent’s tax rate is higher. This law is commonly known as Kiddie Tax. The child’s investment income may be reported by using one of the following forms:
- FTB 3803, Parents' Election to Report Child's Interest and Dividends. The parents use this form to elect to include the child's interest and dividend income on their tax return. If the parents make this election, the child does not need to file a tax return. The requirements for parents to elect to use FTB 3803 are different than the FTB 3800, review the instructions for both forms.
- FTB 3800, Tax Computation for Certain Children with Investment Income. When a child files a tax return, use this form to compute the tax on the child's investment income at the parent's tax rate.
Note: Your client is not required to report the same as federal. For example, if your client reported federal Kiddie Tax on the parent’s return, your client can choose to report it on the child’s return for California and vice versa. Schedule CA adjustments would be needed.
Kiddie Tax is owed if all the following apply:
- The child is 18 and under or a student under age 24 at the end of the year.
- The child has investment income taxable by California of more than $1,900
- At least one of the child's parents was alive at the end of the year.
- The child does not have earned income that exceeds over half of their support.
If the child has an individual filing requirement, the Form 3800 can be attached to the child’s tax return to report the Kiddie Tax. In this case, you should also verify whether or not the child can be claimed as a dependent by another person. A child who can be claimed as a dependent by another person cannot take a personal exemption on their own tax return. This is true even if the other person who can claim the exemption does not actually claim it.
If the child has earned income that exceeds over half of their support, the Kiddie Tax is not applicable. It is possible however, that your software may still suggest that a Form 3800 be attached to the child’s return. Filing a Form 3800 on a tax return where the child claims a personal exemption may lead us to believe the child can be claimed as a dependent by another person. A notice would then be issued by us denying the child’s personal exemption.
In general, for taxable years beginning on or after January 1, 2010, California law conforms to the Internal Revenue Code (IRC) as of January 1, 2009. For federal Kiddie Tax rules, see IRC Section 1(g).