Do I Have to Pay Taxes on My Minor Child's Alaska Permanent Fund Dividends?
A 1976 amendment to the Alaska state constitution created a permanent investment account to be funded by a portion of the state's yearly oil revenues. This fund would generate a dividend -- the Permanent Fund Dividend, or PFD -- to be paid annually to all qualifying Alaska residents. The first PFD was distributed in October 1982. As a qualifying Alaskan resident, you can apply annually for your own PFD and sponsor your qualifying minor child's application. PFD money is taxable income, though no federal income taxes are withheld. It is your responsibility to correctly report all PFD income for you and your minor child and pay all associated taxes.
PFD Application on Behalf of a Child
You must be an eligible sponsor of a minor child to file a PFD application on her behalf. You must be an adult resident with whom your child claims residency, and you must have had legal and physical custody of your child for most of the PFD year for which you are applying. Other requirements, such as the length of absence from the state in a calendar year, also affect your application. Be sure you are qualified to sponsor your child’s PFD application before submitting one on his behalf.
Each year, the Internal Revenue Service establishes a threshold for unearned income received by a minor child; if your child’s unearned income exceeds the threshold, she is required to file a tax return. The PFD is considered unearned income, as it is derived from interest and dividends instead of employment. In 2012, the IRS set the unearned income threshold at $950, and the 2012 PFD was $1,174. If your minor child received a PFD in 2012, she was required to file a tax return.
Separate from the general unearned income rule is another tax rule that applies to minor children -- and older children in some instances -- who receive more than the IRS’ established threshold of unearned income. This “kiddie tax” was established to prevent parents from reporting unearned income on their child’s tax return as a way to use their child’s lower tax bracket to achieve a tax break. It did so by applying the parents’ top tax rate to any of the minor child's unearned income that exceeded $1,900 in 2012. If your child’s only unearned income in 2012 was the PFD of $1,174, the kiddie tax was not applicable; your child's income was not over the established threshold.
IRS Form 8814
You are allowed the option of reporting your child’s income on your own tax return, as opposed to having your child file her own tax return. Do so by including IRS Form 8814, Parents’ Election to Report Child’s Interest and Dividends, with your tax return. Eligibility is conditional, depending on your child’s age, student status, unearned income amount and income sources.
Blyss Cruz has called Alaska home for 30 years. She has written numerous business, financial and legal documents related to her long-time employment in both the public and private financial sectors. Cruz holds a B.S. in Paralegal Studies and an MBA in business and accounting.