Today TaxMama hears from Karen in California who tells us, “I am custodian of an UTMA account for my 4-year-old niece. I received a 1099 this year listing approximately $500 in capital gains and dividends. I’m not in contact with my niece’s parents, nor are they aware of this gift. Due to the small amount, does this income still need to be reported either as a filing for my niece alone or on her parents’ return?”
How very sweet of you to open an account for a child when you are not close to the parents.
But, how ever did you get the little girl’s Social Security Number without that contact? If the account is reported under your Social Security Number, you have two choices:
1) To report it on your own tax return.
2) Find the child’s Social Security Number and report it as nominee income on your tax return, to be reported by the child or the child’s parents.
Now, if you somehow did get hold of the child’s Social Security Number and opened the UTMA account with your niece’s Social Security Number – well, unfortunately, you’ll need to pass this information over to the parents.
Since you have no idea how much other income your niece has, perhaps from other generous family members, you don’t know if her income will exceed the kiddie tax limits.
If your niece has over $850 in unearned income for any year, and she is under age 18, her income is taxed at her own rate. After $1,700, it is taxed at her parents’ highest tax rate.
So the only way you can keep this account secret is if you used your Social Security Number and pay the taxes on the account yourself.
Otherwise, if you don’t tell your brother, they’ll be getting a notice from IRS about the unreported income – and will be asking you about it.
And remember, you can find answers to all kinds of questions about kiddie taxes and taxes and other tax issues, free. Where? Where else? At TaxMama.com
- Ask TaxMama :: Where taxes are fun and answers are free
- www.TaxQuips.com :: The number ONE free tax podcast online
- Kiplinger.com :: Article about the Kiddie Tax