IRS TAX TIP 2001-37
TAX ON CHILD'S
-- Part or all of a child's investment income may be taxed at the
parent's rate rather than the child's rate, according to the IRS.
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 only
applies to children who are under the age of 14. For 2000,
it applies if the child's total investment income for the year was
more than $1,400. Investment income includes interest,
dividends, capital gains, and other unearned income.
figure the child's tax using this method, fill out Form 8615,
"Tax for Children Under Age 14 Who Have Investment Income of
More Than $1,400," and attach it to the child's federal
income tax return.
a parent can, in many cases, choose to report the child's
investment income on the parent's own tax return. Generally
speaking, this option is available if the child's income consists
entirely of interest and dividends (including capital gain
distributions) and the amount received is less than $7,000.
Eligible parents can choose this option by filling out Form 8814,
"Parent's Election to Report Child's Interest and
Dividends," and including it with their tax return.
special tax rules do not apply to investment income received by
children who are age 14 and over. In addition, wages and
other earned income received by a child of any age are taxed at
the child's normal rate.
information can be found in IRS Publication 929, "Tax Rules
for Children and Dependents." This publication is
available on the IRS Web site at www.irs.gov
under the "Forms & Pubs" section, or may be accessed
directly at ftp.fedworld.gov/pub/irs-pdf/p929.pdf.
You may also order it by calling the IRS toll-free at
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** Reference: IRS
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