Children with investment income may have part or all of this income taxed at their parent’s tax rate rather than at the child’s rate. Investment income includes interest, dividends, capital gains and other unearned income
This rule applies to children who have investment income of more than $1800 and meet one of three age requirements for 2008:
- The child is younger than 18.
- The child is 18 and has earned income that does not exceed one-half of their own support for the year.
- The child is older than 18 and younger than 24 and a full-time student with earned income that does not exceed one-half of the child’s support for the year.
To figure the child's tax using this method, fill out Form 8615, Tax for Certain Children Who Have Investment Income of More Than $1,800, and attach it to the child's federal income tax return.
When certain conditions are met, a parent may be able to avoid having to file a tax return for the child by including the child’s income on the parent’s tax return. In this situation, the parent would file Form 8814, Parents' Election To Report Child's Interest and Dividends.
More information can be found in IRS Publication 929, Tax Rules for Children and Dependents. This publication and Forms 8615 and 8814 are available on the IRS Web site at IRS.gov in the Forms and Publications section. You may also order them by calling the IRS at 800-TAX-FORM (800-829-3676). Links:
- Form 8615, Tax for Children Under Age 18 With Investment Income of More Than $1,800 (PDF 49K)
- Form 8615, Instructions (PDF 24K)
- Form 8814, Parent's Election to Report Child's Interest and Dividends (PDF 43K)
- Publication 929, Tax Rules for Children and Dependents (PDF 220K)