For 2007 income tax purposes, investment income over $1,700 earned by a child under age 18 is taxed at the child’s parent’s tax rate. The kiddie tax only applies to investment income such as interest, dividends, rents, royalties, and profits on the sale of property. As the child’s parent you generally must use form 8615 to report their income.  On the form 8615, the kiddie tax rules are applied and the tax is reported on the child’s income tax return. The 8615 computation has no effect on the treatment of items on your own return or on your tax computation.

If you use the married filing seperatly filing status, the parent with the larger amount of taxable income is responsible for the kiddie tax computation. If parents are divorced or separated, the parent who has custody of the child for the greater part of the year computes the tax.

Attention: Starting in 2008, the kiddie tax will apply to investment income of over $1,800 for children in the following categories:

1.  children under the age of 18.

2. children who are age 18 who do not have earned income exceeding 50% of their support.

3. children age 19-23 who are full-time students and who do not have earned income exceeding 50% of their support.