IRS Tax Tip 2003-50, (March 12, 2003) -- 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 2002, it applies if the child's total investment income for the year was more than $1,500. 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 14 With Investment Income of More Than $1,500, and attach it to the child's federal income tax return. 

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