The new law for 2008 raises the age from under-18 to under-19 (under-24 if a student) at which a child's unearned income in excess of $1700 is taxed at the parent's rate.

2008 marks a big change in the kiddie tax rules. "Kiddie tax" is the name for the way of determining the tax a child will pay when the child has unearned income (interest, dividends, capital gains, royalties, etc.) of $1700 or more and is under the age of eighteen. Previously, kiddie tax applied to children under the age of fourteen. In 2008, the age will rise to match the age of dependency (see section on dependency below). It will apply to children under the age of nineteen or full-time students under the age of twenty-four.

Kiddie tax rules apply the parents’ tax rate to the child’s excess unearned income when it’s over $1700. The income up to that point is subject to a standard deduction and generally a ten percent tax rate.

The importance of this change is that the child who has savings, especially through trust funds or other means, probably will be paying a larger tax than he or she would otherwise be accustomed to. In addition, parents who want to shift income to the child through gifts of stock or other investments may need to seek advice before making the transfer.

However special rules apply for 2008-2010; the tax rate will be zero for those who have parents in the 10-to-15-percent income tax bracket.