How is a childs investment income taxed?
Part or all of a child’s investment income may be taxed at the parent’s rate rather than the child’s rate. Because a parent’s taxable income is usually higher than a child’s income, the parent’s top tax rate will often be higher as well. This special method of figuring the federal income tax applies to children who are under the age of 18, as well as: • A child who is age 18 at the end of the year and whose earned income is not more than half of the child’s support, and • A student who is under age 24 at the end of the year and whose earned income is not more than half of the child’s support. For 2008, it applies if the child’s total investment income for the year was more than $1,800. Investment income includes interest, dividends, capital gains, and other unearned income. To figure the child’s tax using this method, fill out Form 8615, “Tax for Children Under Age 18 With Investment Income of More Than $1,800”, and attach it to the child’s federal income tax return. Alternatively, a p
