2007 Kiddie Tax changes

2007 Kiddie Tax requirements:

For 2007, the Kiddie Tax applies to children under age 18. When a child is subject to the "Kiddie Tax," unearned income such as interest and dividends may be taxed at the parents' marginal tax rate unless the child’s rate is higher than the parents’ rate. The unearned income must exceed the dependent’s standard deduction ($850 for 2007), plus the greater of :

• the dependent's standard deduction ($850 for 2007) or
• itemized deductions related to the unearned income

For most dependents affected by the Kiddie Tax, this means the parent’s tax rate applies to investment income over $1,700 in 2007.

2008 Kiddie Tax changes

The Small Business and Work Opportunity Tax Act of 2007 further increased the age to which the Kiddie Tax applies. Beginning in 2008, the Kiddie Tax will apply to certain children under age 19 (or under age 24 if a full-time student).

This means it is possible that a dependent may be taxed at their own tax rate in 2007 and then subject to the Kiddie Tax in 2008, and as a result, taxed at the parents’ rate.