High Interest Investment

do i have to pay taxes on my child's savings account interest?

I opened a savings account as a joint account holder with my child, he is the primary account holder. The account is funded with automatic weekly deposits. No money has been withdrawn. No money will be withdrawn until he is 18. Do I pay taxes on interest accrued?

Public Comments

1. Only if that interest exceeds about $5,000 in one year, which at current interest rates would imply a savings account balance of about $200,000. If your child has that much in savings, he/she needs an independent financial adviser. Can I be your child? I can really be cute, honest I can!
2. Maybe - will depend on the amount of interest. Research "kiddie tax". The IRS doesn't allow parents to avoid paying tax on interest and other investment income by putting the money in their child's name.
3. No. If the child's account earns more than $ 600 in interest then the child will have to have a return filled out. Don't hold me to the 600 dollar figure as I think it has been increased for 08; haven't checked that yet.
4. The standard deduction for a child is $900. So if your dependent's ONLY income is interest income and it's less than $900, no tax. When it gets above $900-$1800, you pay 10% tax on the 2nd $900 and can add it to your tax bill (there's a kiddie tax form). Above $1800, the difference is taxed at your tax rate. IRS pub 970.
5. For 2008 returns, the kiddie tax applies to children under the age of nineteen and to full time students under the age of twenty-four. There is no requirement that the child be dependent of anyone. The kiddie tax will apply if child's unearned income is more that fifty percent of the child's support for the entire year. It will not apply if child's earned income is more that fifty percent of the child's support for the entire year. It appears that kiddie tax does not apply in your case. Also the child is dependent and child is not required to file unless the unearned income is more than $900.
6. Interest on savings accounts of children is taxable. Depending on various things that you have not disclosed, it may be taxed at your rate (meaning the rate calculated based on the total of all your income) or the child's rate (meaning the rate calculated based on the child's income). Depending on various things that you have not disclosed, it may be possible for the child, rather than you, to pay the tax. If the money is taxed at the child's rate, not at your rate, and the child has no other income, the rate might be 0, in which case no tax would be due.