Explaining IRS Form 8814 and Form 4972

The U.S. tax code includes Form 8814, Parents’ Election To Report Child’s Interest and Dividends, and Form 4972, Tax on Lump-Sum Distributions. Form 8814 allows parents to report a child’s investment income on their own tax return, simplifying the filing process. Form 4972 is used to calculate tax on certain retirement plan payouts under specific rules.

Understanding Form 8814 for a Child’s Investment Income

Form 8814 allows parents to report their child’s investment income on their own tax return. The form relates to the “kiddie tax” rules, which were established to prevent parents from avoiding higher tax rates by shifting income-producing assets to their children. For the 2025 tax year, the first $1,350 of a child’s unearned income is tax-free, the next $1,350 is taxed at the child’s rate, and any amount over $2,700 is taxed at the parent’s rate.

To use Form 8814, several conditions must be met. If these criteria are met, the parent can use Form 8814 instead of filing a separate Form 8615 with the child’s return.

• The child was under age 19, or under age 24 if a full-time student.
• The child’s only income was from interest and dividends.
• The child’s gross income was less than $13,500 for the 2025 tax year.
• The child would otherwise be required to file a tax return.
• The child did not file a joint return.
• No estimated tax payments were made for the child, and no prior-year overpayment was applied.
• No federal income tax was withheld from the child’s income.

Information Needed to Complete Form 8814

To complete Form 8814, parents need the child’s full name and Social Security Number. You will also need the year-end tax statements that report the child’s unearned income, which are Form 1099-INT for interest and Form 1099-DIV for dividends and capital gain distributions.

Part I of the form requires transferring figures from these 1099 statements. You will enter the taxable interest from Form 1099-INT, line 1, ordinary dividends from Form 1099-DIV, line 1a, and any qualified dividends from line 1b. Capital gain distributions from line 2a are also entered.

The tax calculation occurs in Part II, using a base amount of $2,700 for the 2025 tax year to determine the taxable portion of the child’s income. The calculated tax from Form 8814 is then carried over and included on the parent’s Form 1040. A separate Form 8814 must be completed for each child whose income the parent reports.

Understanding Form 4972 for Lump-Sum Distributions

Form 4972, Tax on Lump-Sum Distributions, is a specialized tax form for a rare situation involving retirement plan payouts. A lump-sum distribution is the payment of a plan participant’s entire balance from a qualified retirement plan within a single tax year. This form allows for special tax calculations that can result in a lower tax liability.

The special tax treatment is only available for distributions made for a plan participant who was born before January 2, 1936. If the participant was born on or after this date, these calculation methods cannot be used. This rule applies to distributions made to the participant or to a beneficiary.

For those who qualify, Form 4972 offers two tax-saving methods. A capital gain election allows the portion of the distribution from pre-1974 plan participation to be taxed at a flat 20% rate. The 10-year tax option calculates tax on the ordinary income portion using 1986 tax rates, as if the money were received over ten years, though the tax is paid in the current year.

Information Needed to Complete Form 4972

Preparing Form 4972 requires information from Form 1099-R, Distributions From Pensions, Annuities, Retirement or Profit-Sharing Plans, IRAs, Insurance Contracts, etc. The plan administrator provides this document. An indicator of potential eligibility for using Form 4972 is Distribution Code A in Box 7 of the Form 1099-R.

The boxes on Form 1099-R correspond to lines on Form 4972. The gross distribution amount is in Box 1, and the taxable amount is in Box 2a. If a portion of the distribution qualifies for capital gains treatment, that amount is listed in Box 3 and is entered onto Part II of Form 4972.

The calculations on Form 4972 walk the taxpayer through applying either the 20% capital gain election or the 10-year tax option. The final tax amount calculated on Form 4972 is then transferred to the taxpayer’s Form 1040.