Alaska Permanent Fund Dividends are Taxable

Don’t forget that the Alaska Permanent Fund Dividend (PFD) is taxable income on Federal income tax returns. Be sure to set aside enough to cover your tax bill, or consider making an estimated tax payment when you get your PFD.

For more information on how to report the Alaska PFD income on the Federal tax return contact the IRS at 1-(800)-829-1040 or visit the the IRS web site at IRS.gov and input the key words in quotes: "Around the Nation Alaska" in the top right search engine.

The Internal Revenue Service reminds Alaskans that the Alaska PFD (including the one-time addition of the $1,200 Resource Rebate) is taxable income for both adults and children, and must be reported on a Federal income tax return. Because of the size of the PFD this year, every child under 18 who is a dependent will be required to file a tax return, and will be affected by the “kiddie tax” rules. Many older children may be affected as well.

Special Tax Rules for Children

Special tax rules apply to children under age 18, and — beginning in 2008 — certain older children who receive more than $1,800 of unearned income, including the PFD and Native Corporation Dividends. Some people refer to this as the “kiddie tax.”

Beginning in 2008, the age of children whose unearned income is taxed at their parent’s rate increased. For children under age 18 and certain older children (described below), unearned income over $1,800 is taxed at the parent’s rate. These special tax rules apply to children who meet all of the following conditions:

1. The child had more than $1,800 of unearned income (defined below).

2. The child is required to file a tax return.

3. The child either:
a. Was under age 18 at the end of 2008,
b. Was age 18 at the end of 2008 and did not have earned income that was more than half of the child’s support, or
c. Was over age 18 and under age 24 at the end of 2008 and was a full-time student who did not have earned income that was more than half of the child’s support. (Full-time Student and Support are defined below.)

4. At least one of the child’s parents was alive at the end of 2008.

5. The child does not file a joint return for 2008.

Unearned Income: For this purpose, unearned income includes taxable interest, ordinary dividends (including taxable Native Corporation Dividends), capital gains (including capital gains distributions), rents, royalties, taxable social security benefits, pension and annuity income and income received as the beneficiary of a trust.

Support: Your child’s support includes all amounts spent to provide the child with food, lodging, clothing, education, medical and dental care, recreation, transportation, and similar necessities.

To figure your child’s support, count support provided by you, your child, and others. However, a scholarship received by your child is not considered support if your child is a full-time student.

Full-time Student: A student is a child who during any part of five calendar months of the year was enrolled as a full-time student at a school, or took a full-time, on-farm training course given by a school or a state, county, or local government agency. A school includes a technical, trade, or mechanical school. It does not include an on-the-job training course, correspondence school, or school offering courses only through the Internet.

Additional links for information:

Publication 505, Tax Withholding and Estimated Tax (PDF)
Form 1040-ES, Estimated Tax for Individuals (PDF)
Child's Investment Income - New 2008 Rules
Tax Topic 553, Tax on a Child's Investment Income