SEA 2009-31 AK, October 6, 2009 SEATTLE — Don’t forget that the Alaska Permanent Fund Dividend (PFD) is taxable income for Federal Income Tax returns. Be sure to set aside enough to cover your tax bill, or consider making an Estimated Payment when you get your PFD. For more information on how to report the Alaska PFD on the Federal Tax Return, contact the IRS at 1-(800)-829-1040 or visit the IRS web site at IRS.gov and input the key words in quotes: "Around the Nation Alaska" in the top right search engine. The Internal Revenue Service reminds Alaskans that the Alaska Permanent Fund Dividend is taxable income for both adults and children, and must be reported on a Federal income tax return. Special tax rules apply to children under age 18, and certain older children who receive more than $1,900 of unearned income, including the Permanent Fund Dividend and taxable Native Corporation Dividends. Some people refer to this as the “kiddie tax.” The 2009 Permanent Fund Dividend of $1,305 will not trigger the “kiddie tax” rules for most children this year, unless they have additional unearned income that brings their total above the $1,900 threshold. However, because dependents must file a tax return if they have unearned income greater than $950, every dependent who received the PFD will be required to file a tax return. Dependent children whose only income is the 2009 PFD can choose to file a separate Form 1040-EZ, or parents can report their children’s PFD as part of their own tax return using Form 8814. However, using Form 8814 may benefit some parents who are eligible for the Child Tax Credit, as the credit will offset the total tax amount, including the child’s portion of the tax. Frequently Asked Questions: My child’s only income is the Permanent Fund Dividend. Does she really need to file a federal tax return? Yes, assuming you are able to claim your child as a dependent. However, because the $1,305 Permanent Fund Dividend alone doesn’t trigger the additional computation required when a child has unearned income over $1,900. There are two ways you can satisfy your child’s filing requirement. You can file a separate Form 1040EZ for your child (no extra forms required unless their unearned income is more than $1,900.) Most parents can also choose to use Form 8814 with their own tax return, and pay their child’s tax along with their own, without filing a separate return for the child. Can anyone use Form 8814 to pay their child’s tax? No. If your child meets any of the following conditions, they MUST file a separate tax return: Earned income (income from work) Income from sources other than the Alaska Permanent Fund Dividend, interest, dividends, and capital gains distributions Gross income was $9,000 or more Estimated payments were made for the child Federal tax was withheld from the child’s income For example, if your child had income from a job, or some stock held for the child was sold in 2009, a separate return would be required. What are the “kiddy tax” rules? Special tax rules apply to children under age 18, and certain older children who receive more than $1,900 of unearned income, including the Permanent Fund Dividend, and Native Corporation Dividends. The unearned income over $1,900 must be taxed at the parent’s tax rate. Some people refer to this as the “kiddie tax.” For children under age 18 and certain older children (described below), unearned income over $1,900 is taxed at the parent’s rate. These special tax rules apply to children who meet all of the following conditions: The child had more than $1,900 of unearned income (defined below). The child is required to file a tax return. The child either: Was under age 18 at the end of the tax year, Was age 18 at the end of the tax year and did not have earned income that was more than half of the child’s support, or Was over age 18 and under age 24 at the end of the tax year and was a full-time student who did not have earned income that was more than half of the child’s support. (Full-time Student and Support are defined below.) At least one of the child’s parents was alive at the end of the tax year The child does not file a joint return. Unearned Income: For Form 8615, unearned income includes taxable interest, ordinary dividends (including taxable Native Corporation Dividends), capital gains (including capital gains distributions), rents, royalties, taxable social security benefits, pension and annuity income and income received as the beneficiary of a trust. Support: Your child’s support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities. To figure your child’s support, count support provided by you, your child, and others. However, a scholarship received by your child is not considered support if your child is a full-time student. Full-time Student: A student is a child who during any part of 5 calendar months of the year was enrolled as a full-time student at a school, or took a full-time, on-farm training course given by a school or a state, county, or local government agency. A school includes a technical, trade, or mechanical school. It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet. If a child’s only income is the 2009 PFD of $1,305, the kiddy tax rules do not apply. Estimated Tax for Individuals Am I required to make an estimated tax payment on my Alaska Permanent Fund? You would be required to make a payment if you meet the general rules below. However, you can choose to make estimated tax payments to cover your taxes on the Alaska PFD by making a payment before January 15, 2010. General Rule You must pay estimated tax for 2009 if both of the following apply. You expect to owe at least $1,000 in tax for 2009, after subtracting your withholding and credits. You expect your withholding and credits to be less than the smaller of: 90% of the tax to be shown on your 2009 tax return, or 100% of the tax shown on your 2008 tax return. Your 2008 tax return must cover all 12 months. Note. These percentages may be different if you are a farmer, fisherman, or higher income taxpayer. See Special Rules in Publication 505, Tax Withholding and Estimated Tax. How do I report the estimated payments I have made when I file my taxes at the end of the year? Take credit for all your estimated tax payments in the "Payments" section of Form 1040, U.S. Individual Income Tax Return, or Form 1040A, U.S. Individual Income Tax Return. For more information see the links below. Links: Publication 505, Tax Withholding and Estimated Tax Form 1040-ES, Estimated Tax for Individuals Tax Topic 553, Tax on a Child's Investment Income
