HRS § 235-7.5 — Certain unearned income of minor children taxed as if parent's income


§235-7.5 Certain unearned income of minor
children taxed as if parent's income. (a) In the case of any child to
whom this section applies, the tax imposed by this chapter shall be equal to
the greater of:
(1) The tax imposed by section 235-51 without regard
to this section, or
(2) The sum of:
(A) The tax which would be imposed by section
235-51 if the taxable income of such child for the taxable year were reduced by
the net unearned income of such child, plus
(B) Such child's share of allocable parental
tax.
(b) This section shall apply to any child for
any taxable year if:
(1) Such child has not attained age fourteen before
the close of the taxable year, and
(2) Either parent of such child is alive at the close
of the taxable year.
(c) For the purpose of this section:
(1) The term "allocable parental tax" means
the excess of:
(A) The tax which would be imposed by section
235-51 on the parent's taxable income if such income included the net unearned
income of all children of the parent to whom this section applies, over,
(B) The tax imposed by section 235-51 on the
parent without regard to this section.
For purposes of subparagraph (A), net unearned
income of all children of the parent shall not be taken into account in
computing any exclusion, deduction, or credit of the parent.
(2) A child's share of any allocable parental tax of
a parent shall be equal to an amount which bears the same ratio to the total
allocable parental tax as the child's net unearned income bears to the
aggregate net unearned income of all children of such parent to whom this
section applies.
(3) Except as provided in rules, if the parent does
not have the same taxable year as the child, the allocable parental tax shall
be determined on the basis of the taxable year of the parent ending in the
child's taxable year.
(d) For purposes of this section:
(1) The term "net unearned income" means
the excess of:
(A) The portion of the adjusted gross income
for the taxable year which is not attributable to earned income as defined in
the Internal Revenue Code, over,
(B) The sum of:
(i) The amount in effect for the taxable year
under section 63(c)(5)(A) (relating to the limitation on standard deduction in
the case of certain dependents) of the Internal Revenue Code as operative under
section 235-2.4(a), plus
(ii) The greater of the amount described in
clause (i) or, if the child itemizes the child's deductions for the taxable
year, the amount of the itemized deductions allowed by this chapter for the
taxable year which are directly connected with the production of the portion of
adjusted gross income referred to in subparagraph (A).
(2) The amount of the net unearned income for any
taxable year shall not exceed the individual's taxable income for such taxable
year.
(e) For purposes of this section, the parent
whose taxable income shall be taken into account shall be:
(1) In the case of parents who are not married
(within the meaning of section 235-93), the custodial parent (within the
meaning of section 152(e) (with respect to the support test in case of child of
divorced parents, etc.) of the Internal Revenue Code) of the child, and
(2) In the case of married individuals filing
separately, the individual with the greater taxable income.
(f) The parent of any child to whom this
section applies for any taxable year shall provide the social security number
of such parent to such child and such child shall include such parent's social
security number on the child's return of tax imposed by this section for such
taxable year.
(g) Election to claim certain unearned income
of child on parent's return.
(1) If:
(A) Any child to whom this section applies
has gross income for the taxable year only from interest and dividends
(including Alaska Permanent Fund dividends),
(B) Such gross income is more than $500 and
less than $5,000,
(C) No estimated tax payments for such year
are made in the name and social security number of such child, and no amount
has been deducted and withheld under section 3406 (with respect to backup
withholding) of the Internal Revenue Code, and
(D) The parent of such child (as determined
under subsection (e)) elects the application of paragraph (2),
such child shall be treated (other than for
purposes of this paragraph) as having no gross income for such year and shall
not be required to file a return under this chapter.
(2) In the case of a parent making the election under
this subsection:
(A) The gross income of each child to whom
such election applies (to the extent the gross income of such child exceeds
$1,000) shall be included in such parent's gross income for the taxable year,
(B) The tax imposed by this section for such
year with respect to such parent shall be the amount equal to the sum of:
(i) The amount determined under section 235-51
after the application of subparagraph (A), plus
(ii) For each such child, the lesser of $10 or
two per cent of the excess of the gross income of such child over $500.
(3) The director shall prescribe such rules as may be
necessary or appropriate to carry out the purposes of this subsection.