Prior to 2006, children under the age of 14 who have unearned income (dividends and interest) over $1600 and are claimed as dependents must be taxed at their parent’s rates – this is the so-called “kiddie tax”. For 2006, the age has increased to dependents who have reached age 18 (yes, this means that emancipated children and married children are not subject to the rules). The amount of the exemption has increased to $1700.
Sooo, the converse of this means that children aged 18 and under who are claimed as dependents and have less than $1700 in unearned income may be taxed at their own rates.
