Part of a child's investment income may be taxed at the parent's tax rate for taxable years beginning before May 26, 2007 if:

1. The child was under age 18 at the end of the tax year,
2. At least one of the child's parents was alive at the end of the tax year,
3. The child's investment income for the tax year was more than the dollar amount specified by law ($1,700 for 2007),
4. The child is required to file a tax return for the tax year, and
5. The child does not file a joint return for the year.

The child's tax is figured on Form 8615 (PDF), Tax for Children Under Age 18 With Investment Income of More Than $1,700. This form must be attached to the child's tax return.

You as a parent may be able to avoid having to file a tax return for your child by including the child's income on your tax return. You can choose to do this if all of the following conditions are met:

1. Your child was under age 18 at the end of the tax year,
2. Your child is required to file a return unless you make this election,
3. Your child had income only from interest and dividends, which includes Alaska Permanent Fund dividends and capital gain distributions,
4. The interest and dividend income was less than the certain amount relative to the tax year ($8,500 for 2007),
5. No estimated tax payments were made for the tax year, and no prior tax year's tax overpayment was applied to the current tax year, under your child's name and social security number,
6. No federal income tax was withheld from your child's income under backup withholding, and
7. You are the parent whose return must be used when applying the special tax rules for children under age 18.

If you do not file a joint return with the child's other parent, refer to Publication 929, Tax Rules for Children and Dependents, to find out which parent's return may include the child's income.

To make this choice, attach Form 8814 (PDF), Parents' Election to Report Child's Interest and Dividends, to your Form 1040 (PDF).

For more information refer to Publication 929, Tax Rules for Children and Dependents. You will need this publication to complete Form 8615 if the child has capital gain distributions.