Many online gamblers are college students and may be considered dependents. You can be claimed as a dependent if your parent(s) provide at least 50% of your support and you are under 18 or a full-time college student under age 24. (A full-time college student is defined as someone taking at least a half-load of courses for at least five months who is working towards a degree at an accredited college or university.) Why is there a headache? Because of a law Congress passed last year.
As part of lowering some taxes Congress extended the kiddie tax until age 24. The kiddie tax is normally thought of as a tax on investment earnings. However, the definition is a bit different than that. “For Form 8615, “investment income” includes all taxable income other than earned income as defined on page 2.” Gambling income is not considered earned income.
I had my first taste of Form 8615 today. (Form 8615 is the form used to calculate the tax for an individual impacted by the kiddie tax.) Your tax professional will likely be asking you for a lot of information if you are impacted by this. He or she will need to know your parents income and filing status. You will likely pay more in tax. And even if you are not claimed as a dependent you may still be impacted by this: The law applies if you can be claimed as a dependent.
My client today was lucky. I don’t believe he can be claimed as a dependent so he’s not impacted by this law. However, I know that this will impact the tax returns of some of my clients and will definitely impact a lot of college students who will be completely unaware of the law. Additionally, many parents will not want their children to know the exact details of what they make yet this new law will either force that to occur or have the parents claim the income on their own tax returns.
