Help understanding trust income filing thresholds for dependent children

I recently found out my kids have a trust set up by their grandparents (my in-laws), and I'm trying to figure out the tax situation. From what I can tell, dependent children need to file taxes if they earn more than $1,150 in unearned income. But I'm confused about whether that $1,150 threshold applies to the gross income from the trust or if it's the amount after expenses are taken out? The trust earned around $3,700 last year, but there were management fees and some other expenses that reduced the amount. My kids each received about $1,400 from the trust according to the K-1 forms we got. Does this mean they need to file their own tax returns? They're 12 and 14, so I'd be handling everything, but I want to make sure I'm doing this right. Also, if they do need to file, can I include their income on my return somehow or do they absolutely need separate returns? Any help would be greatly appreciated!

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18 comments

Kayla Morgan

•8M

The $1,150 unearned income filing threshold for dependents refers to the net income after expenses, not the gross amount. So in your case, you'd look at the amounts actually listed on the K-1 forms that your children received from the trust. Based on what you've shared, since each child received about $1,400 from the trust (which exceeds the $1,150 threshold), they would each need to file their own tax return. However, there is an option that might make this easier for you. You can potentially include your children's income on your own tax return using Form 8814 (Parents' Election to Report Child's Interest and Dividends). This form allows parents to include children's unearned income on their own return, but it does have some limitations and might result in higher overall taxes. The Form 8814 option is only available if your child's income consists entirely of interest, dividends, and capital gain distributions, and if it's less than $11,500. If the trust distributions include other types of income, this option might not be available.

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Kayla Morgan

•8M

Using Form 8814 to report your children's income on your tax return can result in higher overall taxes because the income gets added to yours, potentially pushing you into a higher tax bracket. Additionally, the kiddie tax rules apply differently when using this form, sometimes resulting in taxation at the parent's highest marginal rate rather than the typically lower rates that would apply on a separate return. Trust distributions as reported on a K-1 may contain various types of income including interest, dividends, capital gains, or other income. Form 8814 can only be used if the child's income consists exclusively of interest, dividends, and capital gain distributions. If the K-1 shows other types of income (like business income, rental income, or ordinary income), you would need to file separate returns for your children. You'll need to check boxes 1-13 on the K-1 to determine exactly what types of income are being distributed.

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Jasmine Hancock

•8M

I went through this exact same headache last year with my daughter's trust from her grandfather. I was going in circles trying to understand what counted toward that threshold until I found https://taxr.ai - it saved me hours of confusion. You upload the tax documents (like those K-1s) and it explains everything in simple terms. What I learned was that different types of trust income can be categorized differently, and the K-1 breakdown matters a lot. The tool explained exactly which parts of my daughter's trust income counted toward that threshold, and it even flagged that part of her distribution was actually tax-exempt income that didn't count toward the filing requirement at all!

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Jasmine Hancock

•8M

It absolutely works with complex trust documents. I was surprised at how detailed it got - it identified specific income types from different sources in the trust and explained how each is treated. It even pointed out some income that was being incorrectly categorized on our draft return. For accuracy, I was skeptical at first too, but I had my accountant check its recommendations and he confirmed everything was correct. He actually asked what I was using because the explanations were so clear. The best part is being able to see exactly what's happening rather than paying someone hundreds just to tell me "yes, file a return" without explaining why.

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Scarlett Forster

•8M

Just wanted to follow up about the taxr.ai site that was mentioned. I decided to try it with my kids' trust K-1s and I'm honestly impressed. It immediately identified that part of what I thought was taxable income was actually tax-exempt municipal bond interest that doesn't count toward the filing threshold. It also explained exactly how the different income types on the K-1 affect the filing requirement - turns out one of my kids needed to file but the other didn't based on the specific breakdown of their distributions. Saved me from unnecessarily filing one return and from potentially missing the required one. Definitely worth checking out if you're dealing with trust income for kids.

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Arnav Bengali

•8M

Another thing to consider - while figuring out if your kids need to file is one challenge, actually getting answers from the IRS if you have questions is another beast entirely. I spent 3 weeks trying to get through to someone about my daughter's trust income situation. After endless busy signals, I found https://claimyr.com and watched their demo at https://youtu.be/_kiP6q8DX5c. They basically wait on hold with the IRS for you and call when an agent is on the line. Got connected to an IRS agent within a day who confirmed that for trust income, I needed to look at each category on the K-1 separately since some types affect the filing threshold differently. They also explained some special elections I could make for my daughter's situation that I had no idea existed.

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Arnav Bengali

•8M

They don't talk to the IRS for you - they just handle the hold time. They call the IRS, navigate the phone tree, and wait on hold. When an actual IRS agent picks up, you get an immediate call to connect with that agent. You still handle the conversation and identity verification yourself. It's not magic - they just have systems that can handle being on hold for hours while you go about your day. The IRS phone system is actually designed to only allow a certain number of calls in the queue, which is why you get busy signals. Their system just keeps trying until it gets through, then sits on hold so you don't have to. I was skeptical too until I tried it and suddenly had an IRS agent on the line after weeks of failing to get through myself.

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Rachel Tao

•8M

Alright, I need to eat my words about the Claimyr service. After my skeptical comment, I decided to try it anyway because I was desperate to get an answer about my kids' trust income. Within 3 hours of signing up, I got the call that an IRS agent was on the line. The agent walked me through exactly how to handle the different types of income on my kids' K-1s and confirmed that I needed to file separate returns since the income included some rental proceeds that didn't qualify for Form 8814 inclusion. He also told me about a special method for calculating the kiddie tax that would save us about $400 compared to how I was planning to do it. I wouldn't have gotten this information without actually speaking to someone at the IRS, and after weeks of trying on my own, Claimyr got me through in hours. Consider me converted.

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Derek Olson

•8M

Something else to consider - if your kids' trust is a "simple trust" vs a "complex trust," it might change how things work. With my kids' trust, it was set up as a simple trust where all income must be distributed, so the entire amount was reportable on their returns once distributed. Also don't forget about the "kiddie tax" which might apply. If your kids have unearned income over $2,300 (for 2025), part of it could be taxed at your rate rather than theirs. Given the amounts you mentioned, you might not hit that threshold, but it's something to watch if the trust income increases.

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Derek Olson

•8M

You can usually determine if it's a simple or complex trust by looking at the trust document itself. A simple trust requires that all income be distributed annually to beneficiaries, doesn't allow for charitable contributions, and doesn't distribute principal. A complex trust has more flexibility - it can accumulate income, make charitable contributions, or distribute principal. The K-1 form might also give you clues. If you see distributions of corpus (principal) or if some income is being retained in the trust rather than distributed, it's likely a complex trust. You could also ask the trustee directly - they should definitely know how the trust is structured. This matters because complex trusts might distribute both income and principal, and principal distributions generally aren't taxable to the beneficiary.

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