In 2009 IRS increases ceiling for children's investment income tax before taxation at parent's income tax rate

The IRS has increased the maximum income a child may earn from investments before they are taxed at their parents' tax rate.

The amount a child may earn at their income tax rate has been increased from $1,700 to $1,800. Investment income earned over $1,800 will be taxed at the parents income tax rate.

Children are subject to this tax until the following:

1. They are 18 and their earned income exceeds half of their child support costs
2. They are a student between 18 and 24 and their earned income exceeds half of their child support costs.

A student is defined as someone who takes 5 or more months of school full time.

This is just my summary, and by no means official, you can read the details here at the IRS website.

To me, this increases the value of 529 plans, as the investment income for your child is not taxed if it's spend on qualified educational expenses.

I also wonder if setting up irrevocable trusts for children become more attractive with the option of being taxed at the parent's tax rate.

Regards, makingourway